Streetwise Professor

September 7, 2009

Somebody Knows Where He’s Not Wanted

Filed under: Economics,Financial crisis,Politics,Russia — The Professor @ 2:39 pm

Last week I hypothesized that the real reason GM was balking at the Magna deal for Opel was that it wanted nothing to do with Oleg Deripaska and Gaz, widely considered to be the ultimate buyer of the stake originally slated to go to Sberbank.   And right on cue, what should I read in today’s news?:

Russian billionaire Oleg Deripaska’s carmaker GAZ (GAZA.RTS), the Russian industrial partner in a Magna-led bid for Germany’s Opel, is not interested in an equity stake in Opel, Deripaska told Vedomosti newspaper.

As Gomer Pyle would say: Surprise, surprise, surprise.

Seeing, however, that this involves Deripaska and his moving lips, it’s hardly a credible commitment that GM can rely upon.   It is more likely a sweet nothing intended to overcome resistance to the German-sponsored sale to Magna and Sberbank.

I would strongly recommend that even as minority shareholder in any deal that GM (i.e., US taxpayers) signs to sell Opel should give the company a veto over the sale of any large stake.   Otherwise, the likely outcome if the deal goes through, and Sberbank gets a big piece, is for Deripaska to say: “What was I thinking? Of course I want an equity   stake.”   Or: “That was my good twin who said that.   He’s been dealt with.   Of course I want in.”

GM should hang tough and refuse any deal involving Gaz, or other dodgy companies.   It should prevent falling victim to the Lucy-and-the-football scam by insisting that it have veto over any transfer of a material portion of Opel by any of the original equity investors.

It would be interesting indeed to see how German interest, and Sberbank’s, would change in response to GM’s insistence on such a term.   I imagine that the interest of both would cool pretty fast.   But if I were GM, I would put my faith in a veto, and pay no attention to anything Oleg Deripaska says.

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  1. The “not interested” bit is a mistranslation. He’s merely said that buying a stake is out of question for now.

    Comment by peter — September 7, 2009 @ 4:00 pm

  2. Thanks, Peter. Effectively the same result, only it makes it all the more important for GM to lock in its blocking rights now.

    The ProfessorComment by The Professor — September 7, 2009 @ 4:58 pm

  3. Dear Professor, Russians can always find a way to go around any agreement.
    As you know, they follow agreement only as long as it suits their interests.

    For example, bondholders can devise certain rules like a limit on debt to equity ratio or whatever as a condition to invest in a company. So what? In that society rules of a civilized society don’t apply.
    A friendly bankruptcy judge will rule that taking additional debt is necessary for company survival, and previous agreements are no longer valid.
    More likely, there will be no additional debt. There are 101 ways to bleed any company of cash and assets, from overpayment for supplies to Enron-type creative accounting.

    In my opinion, Americans have no chance to win the game, no matter what conditions are proposed and accepted by Russians.

    During last few years Russian companies were borrowing heavily from western banks. Recently Russian legislators have created new bankruptcy laws. Read my lips: most of those debtors will go bankrupt, but there will be no assets to claim. One to nothing for Russians.

    Even if the main assets of an oil-producing company is a license to pump oil, – even that license can be sold before western creditors will be able to claim any piece of a bankrupt company. In Russia everything is possible.
    Let’s wait and see. I made my prediction. Western banks will suffer heavy losses in Russia in a not-so-distant future.

    Comment by Michael Vilkin — September 7, 2009 @ 5:42 pm

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