Cabinet Clears Siemens Bid for Potanin Firm

bloombergRussian media had said that Putin was against the deal due to defense concerns.
The government said Thursday that it fully supported a bid by Germany's Siemens to buy a controlling stake in turbine maker Power Machines (Siloviye Mashiny).

Siemens, which already has a 5 percent stakes, needs a go-ahead from the government to buy an additional 71 percent, because Power Machines makes military equipment.

"I assess this as positive investment that the state needs to support and which will seriously boost Russia's exports of hi-tech products," Finance Minister Alexei Kudrin said at a Cabinet meeting.

But it was still unclear when the deal could take place, because it could take weeks for the Federal Anti-Monopoly Service to approve it.

Siemens' bid comes at a time that investors are concerned about Russia's investment climate amid a continuing dispute between the Kremlin and oil major Yukos, which analysts say is politically motivated.

Prime Minister Mikhail Fradkov, also addressing the Cabinet meeting, said the government needed to agree on how much they were prepared to sell in Power Machines.

"We need to find a certain compromise here related to Siemens' stake in this project ... Power Machines is consulting with the government as to how much," Fradkov said.

Russian media have reported that President Vladimir Putin is categorically against Siemens taking a stake in Power Machines because of the defense link.

But analysts have said it is unlikely Siemens would pursue the deal if it did not have strong political backing. The deal came to light after the early July visit of German Chancellor Gerhard Schroder, who has good personal ties with Putin.

Power Machines -- controlled by metals billionaire Vladimir Potanin -- had previously been expected to merge with Russian machinery giant OMZ but then received Siemens' offer earlier this month.

The government's verbal go-ahead Thursday sent OMZ shares down 13.81 percent to $5.99 on Moscow's RTS exchange.

Power Machines general director Yevgeny Yakovlev, who also attended the Cabinet meeting, looked delighted.

"I not only fully support Siemens' bid ... but also want to actively push it forward," he said.

"I want to establish a production and technical center based on Power Machines and serve markets in Russia, former Soviet countries and most probably Asia."

Siemens' business in Russia is currently worth more than 1 billion euros ($1.2 billion) per year, or just over 1 percent of the engineering conglomerate's total revenues.

Last week, Siemens asked the Anti-Monopoly Service to approve its bid, but the watchdog said it could take 50 days to make a final decision.