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. Last Updated: 07/27/2016

'Poison Pill' Clause in GM-AvtoVAZ Deal

General Motors apparently inserted a clause in its new $340 million joint venture with AvtoVAZ that gives the U.S. auto giant the right to take complete control of the deal if there are any changes in AvtoVAZ's ownership structure.

The "poison pill" clause, so-called because it deters any prospective takeover of the Tolyatti-based automaker and prevents any new owner from using the GM or Chevrolet trademark in Russia, was first reported by the Financial Times on Thursday.

"The buy-out clause will enable the world's largest carmaker to take control of the Russian joint venture with payment of $100 million — the equivalent of AvtoVAZ's investment in the project," the FT reported.

The European Bank for Reconstruction and Development, which has a $40 million stake in the venture and is lending it an additional $100 million, seemed to confirm the report Friday when its spokesman for Russia, Richard Wallis, said General Motors was responsible for leaking the details of the contract.

"Such a big company like GM has every right to have a parachute in this [deal]," Wallis said, adding that "AvtoVAZ has become a very attractive company" as a result of its GM partnership, which is the largest foreign direct investment in the Russian automobile industry.

"Someone has a very good appetite," said Wallis, referring to the 165 percent rise in AvtoVAZ's share price since the beginning of the year, which has led to takeover speculation.

Like the EBRD, GM did not deny the existence of the clause.

"It is very hard to give any comments about this situation," said Alexander Moinov, GM's spokesman in Moscow.

"I have no right to comment on things that are a commercial secret," he said.

AvtoVAZ officials could not be reached for comment.

Under the terms of the joint venture, GM and AvtoVAZ, which makes the popular Lada cars and Niva jeeps, will invest $100 million each to assemble 75,000 sport utility vehicles at a new plant in Tolyatti that will be sold under the Chevrolet brand. Each automaker will have a 41.5 percent stake in the deal. The remaining 17 percent will go to the EBRD for its $40 million investment.

If true, the "poison pill" clause represents one of the most protective measures used by a foreign investor in a Russian manufacturing project and is likely inspired by tactics recently used by tycoon Oleg Deripaska's Siberian Aluminum to gain control of GAZ, a carmaker with over $1 billion in sales last year.

Deripaska's takeover of GAZ comes on the heels of his acquiring top bus maker PAZ and reports that he is interested in acquiring top truck maker LiAZ — all of which have contributed to speculation that AvtoVAZ may be his next target.

Unlike GAZ and PAZ, however, it would be impossible to acquire AvtoVAZ by accumulating its free float because the controlling stake is in the hands of AvtoVAZ management.

"GM's move is an insurance policy from a hostile takeover and specific risks — it is normal and logical," said Yulia Zhdanova, an analyst from United Financial Group.

One analyst, who asked not to be named, said that it is very likely that GM leaked the details of the contract to the FT to calm down its shareholders over Deripaska's moves and the cooling relationship between Russia and the United States.