On March 17, Power Machines held an EGM to consider buying 50.32% of common shares in Kaluga Turbine Plant (KTZ) from the Alexei Mordashov-owned Highstat Limited, a Power Machines majority shareholder. The purchase price is set at about USD 206.7 per common share, valuing the entire deal at RUB 1, 265 mn, USD 53.7 mn).
By law, Power Machines is required to make a buyout offer to KTZ remaining shareholders at the same price at which the controlling share was bought, i.e., USD 206.7 per share. In the open market, KTZ shares are now quoted at USD 205 per share. Therefore, the information on the EGM and the purchase price are to have no effect on the current stock valuations for both companies.
We believe the information is not to impact the price of Power Machines shares as well, since the company’s plans to buy a controlling interest in KTZ were known last autumn. The corresponding decision was made at a session of the UES Committee for Strategy and Reform, held on August 28, 2007. At the meeting, UES representatives on the Power Machines board of directors were instructed to vote for the purchase of 50.3% of voting shares in KTZ from private investors. Plans called for spending USD 50 mn for the buyout. The buyout price was projected at USD 192.2 per common share. The price of the deal has changed a little due to the weakening dollar. In the autumn, UES of Russia sold its blocking stake to Highstat Limited, and the new shareholder continues to make good on the decisions made earlier.
We estimate the fair value of one common share in Power Machines at USD 0.163, with a downside of 19.1%, which corresponds to SELL recommendation. The fair value of one common share in KTZ is USD 206.2 per share, with an upside of 0.6%, which corresponds to HOLD recommendation.
0.553
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