The bid grabbed headlines and spawned talk that Russian enterprises would grow to emulate their Western counterparts in mastering the art of the corporate takeover. But a year after powerful Bank Menatep sought to gain control of the confectioner Red October, the hostile public tender approach remains largely an exception in the Russian market.
On behalf of the Koloss frozen foods giant it controlled, the bank last July announced through its investment-banking arm Alliance-Menatep that it would offer a premium price at a public tender for shares in Red October, Russia's largest candy producer. It was the first such hostile takeover attempt in post-Soviet Russia's brief corporate history.
But despite sweetening and extending the offer, Menatep never attracted enough shareholders. In return for dropping the bid, however, the bank gained a consolation prize of a seat on the board -- Alliance-Menatep chief executive officer Yury Milner, who pronounces himself "satisfied" with the bank's current input in Red October.
Since then, the number of takeovers has risen as investors consolidate their holdings, but few are opting for the Red October method, analysts say.
"I don't think that Red October-style, classic, Western-designed public tender offers have a future in Russia until and unless that design is required by law," said Leonid Rozhetskin, head of investment banking at Renaissance Capital.
The failure of Alliance-Menatep's bid could have caused other investors to reconsider the public tender option, said Alex Goodwin, chief executive of Sector Capital.
"I don't think you're going to see many of the leading investment firms engaging in hostile [takeovers] when there are so many friendly [takeovers] that are possible," he said. "I'm not aware of any major enterprises changing hands on a majority basis, on a hostile basis."
A high-profile tender by definition tends to be hostile -- announcing publicly a firm's intention to buy up another company's shares without first negotiating with management. And in Russia, friendly takeovers can be hard enough without tackling the unfriendly kind, Goodwin said.
Some investors, of course, regularly gobble up majority stakes in enterprises, often regardless of company wishes. Boris Jordan, chief executive of Renaissance Capital, has been criticized for his aggressive investment style in this regard.
The public tender involves setting one price for all shares, making the purchase intention public and setting a specific time period for the sale. In the case of Red October, Alliance-Menatep initially offered to buy the shares at $7.50 apiece, when the market price was $5.80, then upped the ante to $9.50 after not enough shareholders expressed interest.
"Not too many domestic buyers in Russia are prepared to pay full price for shares. There is inevitably always some sort of discount," Milner said.
Another reason to shy away from this method, Rozhetskin said, is Russia's still primitive state of information disclosure by companies. To target a company for a hostile takeover requires knowing enough about the enterprise to make a sound business decision without tipping management off about the pending buy-up.
Red October -- like other blue-chips such as LUKoil and Norilsk Nickel -- was an exceptional case, since much due diligence by Western auditors had already been done.
"With Red October you could get a sense of what the company's all about. Generally in Russia you don't know," Rozhetskin said.
Milner said factors unique to Red October's shareholding structure prompted the bank to launch the public tender, a method it generally avoids.
"We wouldn't launch a similar tender for almost any other enterprise," he said. He said stock was concentrated in the hands of small shareholders plus a few big shareholders, and only about 30 percent of the shares were traded. Rather than buy from the market -- obtaining still less than 51 percent -- and then negotiate separately with the large shareholders, the bank decided to set one price through the tender.
Alliance-Menatep did not walk away from the deal empty-handed, though Red October president Anatoly Duarsky said the bank's representation on the board has barely affected the plant's operations.
"It's a normal working situation, we are working according to our plan," Duarsky said. "There have been no specific changes." He said profit figures were not available for 1995 and the volume of production did not rise from the year before.
Milner said Alliance-Menatep and Red October are currently seeking out acquisitions in Russia's regions to plump Menatep's food company portfolio.
On behalf of the Koloss frozen foods giant it controlled, the bank last July announced through its investment-banking arm Alliance-Menatep that it would offer a premium price at a public tender for shares in Red October, Russia's largest candy producer. It was the first such hostile takeover attempt in post-Soviet Russia's brief corporate history.
But despite sweetening and extending the offer, Menatep never attracted enough shareholders. In return for dropping the bid, however, the bank gained a consolation prize of a seat on the board -- Alliance-Menatep chief executive officer Yury Milner, who pronounces himself "satisfied" with the bank's current input in Red October.
Since then, the number of takeovers has risen as investors consolidate their holdings, but few are opting for the Red October method, analysts say.
"I don't think that Red October-style, classic, Western-designed public tender offers have a future in Russia until and unless that design is required by law," said Leonid Rozhetskin, head of investment banking at Renaissance Capital.
The failure of Alliance-Menatep's bid could have caused other investors to reconsider the public tender option, said Alex Goodwin, chief executive of Sector Capital.
"I don't think you're going to see many of the leading investment firms engaging in hostile [takeovers] when there are so many friendly [takeovers] that are possible," he said. "I'm not aware of any major enterprises changing hands on a majority basis, on a hostile basis."
A high-profile tender by definition tends to be hostile -- announcing publicly a firm's intention to buy up another company's shares without first negotiating with management. And in Russia, friendly takeovers can be hard enough without tackling the unfriendly kind, Goodwin said.
Some investors, of course, regularly gobble up majority stakes in enterprises, often regardless of company wishes. Boris Jordan, chief executive of Renaissance Capital, has been criticized for his aggressive investment style in this regard.
The public tender involves setting one price for all shares, making the purchase intention public and setting a specific time period for the sale. In the case of Red October, Alliance-Menatep initially offered to buy the shares at $7.50 apiece, when the market price was $5.80, then upped the ante to $9.50 after not enough shareholders expressed interest.
"Not too many domestic buyers in Russia are prepared to pay full price for shares. There is inevitably always some sort of discount," Milner said.
Another reason to shy away from this method, Rozhetskin said, is Russia's still primitive state of information disclosure by companies. To target a company for a hostile takeover requires knowing enough about the enterprise to make a sound business decision without tipping management off about the pending buy-up.
Red October -- like other blue-chips such as LUKoil and Norilsk Nickel -- was an exceptional case, since much due diligence by Western auditors had already been done.
"With Red October you could get a sense of what the company's all about. Generally in Russia you don't know," Rozhetskin said.
Milner said factors unique to Red October's shareholding structure prompted the bank to launch the public tender, a method it generally avoids.
"We wouldn't launch a similar tender for almost any other enterprise," he said. He said stock was concentrated in the hands of small shareholders plus a few big shareholders, and only about 30 percent of the shares were traded. Rather than buy from the market -- obtaining still less than 51 percent -- and then negotiate separately with the large shareholders, the bank decided to set one price through the tender.
Alliance-Menatep did not walk away from the deal empty-handed, though Red October president Anatoly Duarsky said the bank's representation on the board has barely affected the plant's operations.
"It's a normal working situation, we are working according to our plan," Duarsky said. "There have been no specific changes." He said profit figures were not available for 1995 and the volume of production did not rise from the year before.
Milner said Alliance-Menatep and Red October are currently seeking out acquisitions in Russia's regions to plump Menatep's food company portfolio.
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