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. Last Updated: 07/27/2016

Red October to Fight Hostile Takeover Bid

The Red October chocolate factory declared Thursday it would fight post-communist Russia's first takeover bid, saying the deal was not lucrative enough, and telling employees they could lose their jobs if the bid succeeds.

Russian frozen-food giant Koloss -- backed by the powerful Menatep bank -- announced Tuesday the country's first public tender offer for 51 percent of Red October's stock.

Koloss is offering to buy shares in the factory -- Russia's largest producer of confectionery -- at $7.50 apiece. On Tuesday market price was around $5.80, but by Thursday the shares had already grown to around $6.70 and Red October representatives said they would likely rise as high as $10 per share.

Red October's management issued a statement Thursday over the factory's radio, advising employees not to sell their shares to Alliance-Menatep -- the investment arm of Menatep Bank organizing the takeover bid, said Tatyana Nikulshina, manager of the Grant Financial Center, Red October's financial adviser.

"The price offered is significantly lower than the real share price," the company statement said.

The statement also warned employees that they may lose their jobs if the takeover is successful. Alliance-Menatep has said Koloss has no plans to change the company's management.

According to Nikulshina, Red October was preparing to fight the takeover, but she gave few details.

"Menatep has the money, we have the connections with Red October's shareholders," she said. "We will see who wins."

Yury Milner, Alliance-Menatep's general director, said the first 20 Red October shares had been sold to his company Wednesday by a small shareholder. He added that Alliance-Menatep was receiving inquiries about the terms of the offer from both Red October employees and institutional investors.

According to both Alliance-Menatep and Grant, it will be necessary to buy 3.2 million shares to achieve a 51 percent stake in Red October, which would cost around $24 million at $7.50 a share.

Milner said Menatep bank might consider financing Red October's expansion into Russia's regions if the takeover is successful.

Officials from other Russian companies welcomed the openness Thursday of Russia's first takeover bid.

"Thank God they are doing it openly," said Vyacheslav Pechkanov, financial director with GUM department store. "It is much worse, when someone buys your shares under the carpet and then pops up and says "Here we are, your new owners."

"It is an open-market economy," Pechkanov said. "I knew what game I was playing when I set up an open-type, joint-stock company."

He expressed concern about CS First Boston quietly buying GUM shares.

"The worst thing about this is that you do not know who your new shareholders are," he said.

Ludmila Golub, chief economist with the share operations department at natural gas monopoly Gazprom, said the news made her glad the state still owns a 40 percent stake in her company.

"It is very good that our controlling package is with the state," she said. "It is our raw-materials base and [the shares] will go nowhere."

Anatoly Darakov, stock operations manager with oil investment company NIKoil, said takeovers would become increasingly common in Russia as companies begin secondary share issues.

"It is a normal trend," he said, "companies need money and the market needs new shares."