The Russians Are Coming: Moscow Investors Go on Shopping Spree for German Companies
Russia's business elite are reaping huge profits from the high prices for natural resources and many are looking westwards to Germany for investment opportunities. However, the close ties between business and politics in Russia has prompted fears that Moscow could be intent on buying up the West one company at a time.
Harald Ruschel, a member of the works council at the Aker shipyard in the northern German Baltic seaport of Rostock-Warnemünde, had expected everything from tears to catcalls and booing. But what he didn't expect was that the 450 early-shift workers, who had convened in a shipyard building last Wednesday, would applaud when Aker CEO Tom Einertsen addressed them -- especially given the news he was delivering.
Einertsen told the employees that Aker Yards, a Norwegian company, had sold a majority stake in two northern German shipyards -- the one in Warnemünde and another in nearby Wismar -- to Russian investors, specifically, to a fund called FLC West. The gentlemen from Moscow, Einertsen told his employees, had promised not to make any changes to staffing, compensation and social benefits.
"It's hard to believe that it went so well," says Ruschel, commenting on his fellow workers' obvious sense of relief. They have seen many owners come and go since German reunification, and their expectations have often been disappointed.
But this time the workers can feel somewhat at ease about the future. The order books are filled for years to come, which explains why the shipyard is the scene of three daily shifts of around-the-clock welding, drilling and hammering. Workers at the dock are currently in the process of mounting the superstructure elements onto the stern of a freighter. Once the midship section and the bow have been assembled, the resulting ship will be 170 meters (558 feet) long and have the capacity to hold 1,700 containers. Shipbuilders are vying for opportunities to build these container ships for the globalized world.
Demand for the vessels is so high that Russian investors, no longer satisfied with simply buying ships, decided to acquire the entire shipyard instead. They were even willing to pay the stiff price of roughly 292 million ($461 million) for the two locations in Warnemünde and Wismar. But money appears to be no object for the Russians.
The number of cases in which Russian companies have acquired stakes in foreign companies has increased substantially since 2001, while investment volume has skyrocketed, from $500 million (316 million) in 2001 to about $24 billion (15 billion) in 2007.
Cash-Rich and Bursting with Vitality
It is still the case that more German companies are investing in Russia than Russian companies in Germany. Automakers like Volkswagen and BMW, eager to profit from the booming Russian automobile market, are building assembly plants in Kaluga and Kaliningrad. But the flow of investment is likely to reverse direction soon, or at least balance itself out. Hardly anyone would have believed this possible just a few years ago.
Russia was a giant, chronically debt-ridden country, plagued by an ailing currency. It was more of a Third World country than an industrialized nation, constantly dependent on the West's loans and loan guarantees. But those days now seem to have been relegated to the distant past.
Nowadays the country conducts itself like a global economic power, cash-rich and bursting with vitality. Its corporate leaders are enterprising, self-confident and, most of all, wealthy. They own something that the rest of the world wants and for which it is willing to pay handsomely.
No other country has benefited as much from soaring prices in the commodities markets. Russia is the world's top exporter of natural gas, and it is second only to Saudi Arabia among the world's biggest oil producers. And the business of producing industrial metals like steel and nickel has given rise to enormous conglomerates run by fabulously rich oligarchs.
Moscow, with its stabilization fund and the world's third-largest foreign currency reserves, now has roughly 420 billion ($664 billion) in its coffers. The national budget has been in surplus for years. "The money is there, and they have to invest it somewhere," Hans-Henning Schröder, an expert on Russia with the Berlin-based German Institute for International and Security Affairs, says laconically. Many nations are currently struggling with the same luxury.
Once-poor countries like China, India and Russia are transferring billions into industrialized nations, undeterred by the global credit crisis. Massive amounts of money are being floated around throughout the world on a quest for investment opportunities. Investment banks, spotting an opportunity, have quickly stepped in to offer their nouveau riche customers their brokering services, expanding their branches in Moscow and St. Petersburg and searching the globe for takeover candidates for their deep-pocketed clients. And they are increasingly turning up attractive opportunities in Germany.
Kalina, a cosmetics manufacturer from Yekaterinenburg, began the surge into Germany three years ago, when it acquired a majority stake in Dr. Scheller Cosmetics, an ailing body care specialist headquartered in Eislingen, near Stuttgart. From then on, the Russians were unstoppable, embarking on a wave of acquisitions that has swallowed up companies of all sizes.
They range from the planned purchase of a small airport in Strausberg, near Berlin, for 4.6 million (7.3 million) by a group of Moscow investors to businessman Andrei Melnichenko's investment in K+S, a fertilizer company based in the central German city of Kassel to aluminum baron Oleg Deripaska's acquisition of a 10-percent stake in Hochtief, a construction firm based in the western city of Essen.
Large amounts of foreign cash have even flooded into companies listed on Germany's DAX stock index. In November, Russian steel industrialist Alexei Mordashov acquired a 5-percent stake in German travel and tourism giant TUI, enough to allow him to exert noticeable influence on corporate strategy. Mordashov supports the planned spin-off of TUI's shipping subsidiary Hapag-Lloyd and a stronger emphasis on the travel business.
- Part 1: Moscow Investors Go on Shopping Spree for German Companies
- Part 2: Pursuing a Classic Predatory Pattern
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