Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Russia's First Hostile Takeover Fails Quietly

In a surprisingly peaceful denouement to Russia's first hostile takeover bid, the Koloss food company agreed Tuesday not to raise or extend its offer for the Red October chocolate factory, allowing its attempt to buy control of the company to collapse.


But Menatep Group, the bankers who had backed Koloss's bid, did walk away with an agreement for two of its representatives to be considered for the Red October board, and to ally with the confectioner in seeking a strategic investment partner for the Moscow factory by the end of this year.


The $9.50-a-share offer, which valued Red October at $60 million, expired at 8 p.m. Tuesday night. Menatep said it would announce Wednesday what percentage of the shareholders had offered to sell, but analysts said it was far short of a 51 percent stake.


"Red October and Menatep decided to resolve the problem of control without spending crazy money -- on the tender, for Menatep's part, and on lawyers, for Red October's part," said Tatyana Nikulshina, a manager with the Grant Financial Center, Red October's financial adviser.


"It is clear that they will not get control," she said.


Financial analysts said the failed bid would nevertheless help Russia's rough-and-tum on the news. Skate-Press quoted a price of 33,600 rubles ($7.40) Tuesday, down from 34,800 rubles Monday. But the price was still well above the $5.80 market value when Koloss announced the takeover bid July 11.


"It is hard to say who won and who lost in this case," said Ilya Goltsov, a trader with Trinfiko trust-investment financial company.


"It is very good for Red October to get financial support from such a powerful bank as Menatep, but Red October is a very good company, too," Goltsov said.


Red October, which recorded profits of $24 million in 1993, boasts Russia's premier chocolate brand name and sits on prime real estate on the Moskva River embankment.


Alliance-Menatep general director Yury Milner did not outright concede defeat Tuesday, saying "only the results of the tender can say how many shares Menatep will control."


The final outcome would be announced Wednesday, he said. As recently as Monday he had said the Koloss offer might be extended.


Yevgeny Torkanovsky, another Alliance-Menatep representative, put a positive spin on the two-week tussle for control, which included factory directors warning workers they would lose their jobs under Koloss.


The frozen-food giant responded by upping its initial offer from $8.50 to $9.50 and stressing it planned no major changes in the work force.


"This is not a defeat -- this is a compromise and definite result of our tender," Torkanovsky told Reuters.


Under a harmonious six-point agreement announced in a joint press release, Red October will consider inviting two Menatep representatives onto its current 16-member board, which would give the food company a voice -- though far short of a controlling interest -- in the chocolate maker's policies.


Meanwhile, the two companies along with Grant "shall use their respective efforts to identify a potential investor" by the end of 1995 to finance the construction of a new factory in Kolomna, outside Moscow, the statement said.


The agreement also stated that Alliance-Menatep would not extend its share-purchase offer; that it would "work together constructively [with Red October] to promote the interests of all of the shareholders"; and would work in tandem with the company to develop a regional network of confectionery factories.


For its part, Red October pledged to "continue an active investment policy" in order to "increase dividends paid to all shareholders," and to support the liquidity of the company's shares.


One analyst thought Menatep's goal in the takeover offer was not to acquire 51 percent of the factory's stake, but simply to test the market.


"The tender was a provocation," said Alexei Goncharov, chief specialist in the Tserikh investment bank's information and marketing department. "Menatep was not seeking to get the controlling stake, but to check how many Red October's shares there are on the market and how many they can collect."


Milner said earlier that Menatep already owns between 1 and 2 percent of Red October shares, while Koloss has less than 1 percent.