United Heavy Machinery, or OMZ, this week finished the first stage of corporate restructuring intended to focus the company's business on two areas: nuclear power plant equipment and oil, gas and shipbuilding.
"We intend to further develop this segment by strengthening our engineering base in the nuclear sector and expanding OMZ's export opportunities," OMZ general director Kakha Bendukidze said in a statement.
Nuclear power plant equipment accounts for about 18 percent of the company's sales. OMZ in January bought a 19.9 percent stake in Atomenergoexport, or AEE, the country's largest exporter of nuclear power plant equipment and services, and a 50.94 percent stake in the smaller Zarubezhenergoproekt research and development institute.
OMZ did not disclose how much it paid for the stakes.
AEE, a near monopoly on exporting turnkey solutions in the nuclear power plant sector, has been one of OMZ's largest customers and handled all of OMZ's nuclear export sales. AEE has representative offices in Europe, China, Iran and India.
OMZ is currently involved in three major nuclear power plant projects overseas -- in India, China and Iran -- and is participating in a consortium to build a power station in Finland.
AEE together with its subsidiary Atomstroyexport, one of the country's largest contractors in the nuclear power industry, had $640 million in exports in 2002 and expects that exports will reach $800 million this year. The two companies had $2.9 billion worth of future projects on their order book as of March 15.
OMZ said it may increase its investment in AEE to a controlling stake. Though formally its stake is under 20 percent, OMZ effectively owns 40 percent of AEE because just over half of the export firm's shares are held by AEE's subsidiaries, OMZ said.
OMZ promised to release details of the AEE deal in May, after Ernst & Young completes due diligence to estimate how the acquisition would affect OMZ's bottom line.
Analysts said the acquisitions looked good but reserved final judgement until the price tag is announced.
"Previously, OMZ has been quite thrifty in its purchases," said Vladimir Savov of Brunswick UBS Warburg. "OMZ is moving away from the pure production of equipment, which is not the highest margin business in the sector, and ... closer to becoming a provider of turnkey solutions, services and know-how for nuclear power plants."
"They're buying a solid management team and a going concern, which is important for a smallish business like OMZ that are expanding rapidly," said Rob Edwards of Renaissance Capital.
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