Sergei Kuznetsov in Minsk -

Russia's truck maker KAMAZ, whose biggest shareholder is Rostekhnologii (state corporation Russian Technologies), and Russkie Mashiny (Russian Machines Corporation), which controls GAZ Group, continue their battle over a possible merger with Belarus' state-owned truck maker MAZ. It looks like the active lobbying by the Belarusian prime minister will tip the scales toward KAMAZ; however, it will be President Alexander Lukashenko that will have the final say when choosing between the two potential Russian investors at the start of 2012.

With Russian Technologies, Belarus intends to establish a joint holding company Rosbelavto, which will later be given equal shareholdings in MAZ and KAMAZ for management. In early 2011, Belarusian First Deputy Prime Minister Vladimir Semashko said that Belarus would be able to contribute not more than 49% in MAZ. At the same time, Belarus and Russia intended to transfer to Rosbelavto stakes in some enterprises servicing the truck makers.

A source close to the negotiations tells bne on condition of anonymity that Russian Machines Corporation, controlled by Russian billionaire Oleg Deripaska, proposed to initially buy a blocking shareholding in MAZ from the Belarusian government. "After that, Russian Machines intends to issue additional shares and increase its interest to a controlling stake. The next step means inviting one of the world's leading truck makers to work with MAZ by selling it shareholding" the source says without naming the investor that may be engaged."

"Russian Machines has already held talks with two global truck manufacturers about the possibility of such a transaction. Those companies maintain that due to political risks they are ready to buy into the Belarusian company by acquiring a stake from the Russian side rather than from Belarus. They want the Russian side to bear responsibility. Russian Machines thus plans to establish a tripartite holding on the basis of MAZ, in which no party will dominate," the source explains.

Compromise

Oleg Andreyev, chief M&A specialist with Alfa-Bank in Belarus, tells bne that both current options are a sort of a compromise with the Belarusian government. "Basically, both companies are interested in 100% stakes in MAZ, or at least 51%," Andreyev says.

"According to President Lukashenko, the Belarusian side is unwilling to sell MAZ and is looking for other types of cooperation, including joint sales structures, etc. In 2005, MAZ's share in the Russian market for trucks was estimated at approximately 17%, whereas in 2009 the figure was around 3.4%. In the third quarter of 2011, the share increased to 11.7%. It is quite clear that the Belarusian government would like to secure stable supplies to the largest market," Andreyev explains.

He notes that Russian companies are pursuing completely different goals in the possible merger deal with Belarus' MAZ. "KAMAZ regards MAZ as one of the largest consumer of engines, gear units, cockpits, etc. Building trucks on the uniform base would be cheaper due to economies of scale. Besides, KAMAZ is mainly focused on the production of special vehicles like road-construction machines, utility vehicles, military machines, etc. The segment of long-haul tractors [in which MAZ specializes] appeared only recently. Therefore, the merger of two enterprises looks quite logical," he says.

At the same time, both Russian Machines Corporation and GAZ Group look at MAZ more as financial investors offering to buy shareholdings to attract a strategic investor afterwards. "In this context, the Belarusian authorities will get real money and can channel it into further development of the plant. The current range of Ural trucks (GAZ Group) is completely different from MAZ, and the companies do not compete with each other. This option is more beneficial for the Belarusian side, but the administrative resource of Russian Technologies will prevail. Moreover, in a few years to come, the share of Daimler will grow in KAMAZ, and this is the key advantage of the cooperation with KAMAZ, rather than GAZ," Andreyev underlines.

What price?

In the summer of 2011, the Belarusian authorities made a decision to wait for detailed investment cooperation proposals from KAMAZ and Russian Machines Corporation, and after that to choose whichever suited best. In September, Russian Machines proposed its investment project. Currently, the Belarusian authorities expect a similar set of documents from KAMAZ. "But Russian Technologies and KAMAZ have not yet provided any economic calculations, citing the fact that they do not know the value of the Belarusian assets available for a merger," the source says.

The need to value MAZ's assets has slowed this process. The Belarusian authorities engaged Ernst & Young to evaluate the truck maker. "The valuator said MAZ was worth about $800m, however, at the same time, a Belarusian valuator had come up with a totally different price. Earlier, the Belarusian authorities and Russian Technologies agreed that should the two values differ more than 20%, another valuator would be chosen, and that's what has happened recently," the source said.

He added that the tender to select a new evaluator was expected in a week or two. "It appears that the two Russian contenders will be ready to submit their documents in six to eight weeks; the proposals will be forwarded to the president, who will make the final decision," the source added.

He noted that the sympathies of Belarusian Prime Minister Vladimir Myasnikovich were clearly with the MAZ-KAMAZ alliance, despite MAZ's certainty that a merger with Russian Machines would be more beneficial. The premier has never hidden his preference. "I believe it [a holding] with Rostekhnologii would be preferable, but it is my subjective opinion, because the matter must be decided on a competitive basis," Myasnikovich said in August.

The wish of the Belarusian side to choose the most generous evaluator is understandable - this would give MAZ a chance to have an equal share in a holding with KAMAZ, and equality is only possible if the partners contribute equally valuable stakes.

Alfa-Bank's Andreyev says he is sure that an independent evaluation of MAZ by an authoritative international agency is the only possible way to identify the value of the truck maker. He notes that the significance of MAZ is much lower than, for example, of Beltransgaz, which has been sold to Russian natural gas monopoly Gazprom, "therefore nobody is going to overpay [for MAZ]".