Managers Take Over MMK
Staff Writer
MOSCOW - The management of No. 2 steel producer Magnitogorsk Iron and Steel Works, or MMK, appeared to take almost total control of the company Wednesday after a key rival abruptly backed out of an auction for the state's remaining 23.8 percent stake. What was expected to be a bruising battle between steel rivals had a surprisingly soft ending, as steelmaker Mechel retreated from the auction at the last minute and a company called UFGIS Structured Holding Ltd. snapped up the stake at the starting price of $790.15 million. MMK management said UFGIS represented the interests of investors linked to Magnitogorsk. Management previously controlled 58 percent of the firm. The buyout marks an important milestone in the ongoing consolidation of Russia's steel industry and could pave the way for the eventual public listing of Magnitogorsk, analysts said. "Unlike other Russian auctions, this is kind of an ideal outcome," said Rob Edwards, a metals analyst with Renaissance Capital. "All in all, I think it's good, and reasonably civilized." Mechel, the country's No. 5 steelmaker, had been preparing for the auction for weeks. In October it held an IPO on the New York Stock Exchange, raising $291 million. The Chelyabinsk-based company, which already held a 17 percent stake in MMK, said that it was willing to pay up to $2.15 billion for the stake. But late Tuesday Mechel announced that it had sold its entire stake in MMK for $780 million to UFGIS Trading Ltd., which it said was acting for a consortium of investors. UFGIS is a venture of Moscow-based brokerage UFG. A UFG spokeswoman did not return calls on Wednesday. But a spokeswoman for MMK general director Viktor Rashnikov hinted that Magnitogorsk management was behind the acquisition of both the state's stake and Mechel's stake, meaning management had secured direct or indirect control of over 90 percent of the firm. "The people who bought the stake [at auction] are friendly to the management of Magnitogorsk," Yelena Azovtseva told Bloomberg on Wednesday. "People who bought the stake from Mechel are possibly also friendly to the management." UFGIS paid an extra $90 million for Mechel's shares in return for a waiver in which Mechel gave up all potential claims on MMK and its shareholders. Analysts called the waiver a dead giveaway that the investment group that bought shares from Mechel was acting on behalf of MMK management. However, Mechel spokeswoman Irina Ostryakova said Mechel signed the waiver because the company had "experienced mistreatment as a minority shareholder [of MMK], mainly in respect to dividends. The buying party was willing to compensate for that." The auction was the final sell-off of a large government stake in a steelmaker.
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