Last Friday, August 31, the Federal Antimonopoly Service (FAS) authorized the purchase of Power Machines securities, thereby accepting the applications filed by two concerns, one of which represents the interests of Alexey Mordashov and another one those of Oleg Deripaska. On July 6, 2007 Highstat Limited (that represents Mordashov) applied to FAS seeking permission to acquire 100% of Power Machines. At a later time, July 31, another application seeking authorization to buy 28% of Power Machines securities was submitted by Stephens Capital Ventures S.A., a business that represents Deripaska’s interests.
Under effective Russian laws, FAS has up to 30 calendar days to review documents submitted, as a result of which Highstat Limited stood a good chance of seeing the green light earlier than Stephens Capital Ventures S.A., but on August 6 FAS decided to roll back the review of Highstat Limited’s application, as it needed additional information. We believe that the real reason behind this move is to create a competitive environment in the run-up to the sale of Power Machines securities. As not only a blocking interest held by UES, but also Interros’ 30.4% block of shares in Power Machines, will be auctioned off in the near future, the above companies will be able to gain control over one of the most attractive engineering enterprises in Russia.
It’s noteworthy that Power Machines is the only producer of medium- and high-capacity turbines in Russia and it has no domestic rivals. In line with the Russian energy holding’s approved investment program, Power Machines will obtain an order unprecedented in terms of volume, which will be driving its key financial indicators and its fundamental value. Furthermore, both Mordashov and Deripaska have ambitious targets in the Russian utility industry, which will stoke major competition.
Since UES’ Strategy and Reform Committee adopted a decision to sell Power Machines’ blocking interest at the starting price of $0.2116 per common share, i.e. 15% above the price of the company’s recent SPO, the struggle for the asset is expected to be acute. As a result of the struggle, we expect to see the engineering concern’s market cap rise in the short-term outlook.
According to our estimates, the approximate fair price for Power Machines’ common share, which we found using the comparative method, is $0.217.
0.244
0.616
