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. Last Updated: 07/27/2016

Siemens Takeover Bid Comes Under Attack

Key Russian officials urged the government not to sell a domestic engineering company to Germany's Siemens, saying that a sale would undermine national security, media reported Wednesday.

In a letter to Prime Minister Mikhail Fradkov, the Federal Industry Agency called on the government to reject Siemens's bid for more than 70 percent of Power Machines because of its role in production for defense, Kommersant daily reported.

"At the moment, approving the deal looks unjustified," said the letter, signed by the agency's head, Boris Alyoshin. The agency is a key part of the Industry and Energy Ministry.

The ministry could not confirm the existence of the letter. The agency was not answering phone calls on Wednesday.

The Siemens bid to buy more than 70 percent of Power Machines from industrial group Interros came to light last year after German Chancellor Gerhard Schr?der, Russian President Vladimir Putin's key ally in Europe, visited Russia.

Although the Kremlin leader initially signaled his support for the takeover, Russian media have reported that Putin changed his mind after learning that Power Machines produced vital components for nuclear submarines and the defense industry.

Kommersant cited other officials as saying Russia had no specific law stipulating foreign companies' ownership rights in domestic "strategic enterprises," which made approval of the Siemens deal even more unlikely.

The German Embassy in Moscow declined to comment.

Analysts said the prolonged, closed-door debate on Siemens within the Russian government reflected a wider standoff between conservatives and liberals in Russian politics.

"The fight is pretty normal -- between a bunch of nationalists ... and more liberal people who understand where the modern world is at," said UBS Brunswick economist Al Breach.

"If that [nationalist] camp wins, it's the worst thing. This is really the bellwether case of what these guys' attitude to foreign investment is."

In its article headlined "Enemy at the Factory Gates," Kommersant quoted Ilya Klebanov, Putin's envoy to the Northwest region, as saying in a letter to the president that giving Siemens the go-ahead would undermine the defense industry.

Klebanov, who has good ties with Putin, argued that the German company simply wanted to use Power Machines as a way to make a foray into the key industries of the former Soviet bloc.

He added that Siemens was not interested in modernizing Power Machines' assets and could start mass layoffs at its plants.

A Siemens official in Moscow, speaking on condition of anonymity, said the company had not lost hope yet.

"We totally agree that there are opponents and advocates of the deal. We understand that very well and are patiently waiting for the official decision," the official said.

An Interros official, who also requested anonymity, said the company was confident the deal with Siemens would go through. "Interros is not thinking of a Plan B at the moment. All we can do is wait," the official said.

Last month, a company controlled by Russian tycoon Oleg Deripaska, who has good relations with Putin, applied to buy Power Machines. Russian media reported that Putin was aware of Deripaska's offer and supported it.

Interros is controlled by Vladimir Potanin, one of Russia's richest men. He also controls the world's biggest nickel and palladium company, Norilsk Nickel.