Automakers invest $750M to acquire a 67% stake in Russia's AvtoVAZ.
May 4, 2012
by The Canadian Press
MOSCOW: Car makers Renault and Nissanhave acquired a controlling stake in Russian car producer AvtoVAZ, set to take effect by 2014, which is much later than the companies expected.
Renault and Nissan, who operate as an alliance, said they will invest $750 million to take a 67% share in a joint venture with state-owned corporation Russian Technologies. The venture will hold 74% in AvtoVAZ. Renault will pay $300 million and Nissan the remaining $450 million.
AvtoVAZ shares dropped sharply, however, on news that the deal will be completed later than predicted.
Renault-Nissan Chairman and CEO Carlos Ghosn called the deal “the latest step in an expanding collaboration that helps modernize the leader of the Russian auto industry.”
AvtoVAZ’s iconic Lada brand has dominated car sales in Russia for decades. But its market share has been shrinking in recent years as rising incomes have allowed Russians to choose slightly more expensive, more reliable foreign brands. Lada cars are increasingly seen as the cheapest option for those who cannot afford even the cheapest foreign vehicle.
Renault purchased 25% of AvtoVAZ in 2008 and has since been helping the struggling car maker with technology and cash. The 2008 economic downturn hurt AvtoVAZ sales, forcing the government to bail it out as a major employer in the Volga river town of Togliatti.
Renault-Nissan will raise its shareholding by acquiring a 25% from Moscow-based investment bank Troika Dialog. The French-Japanese group said that over the coming months it will perform financial, legal and environmental due diligence at the plant in Togliatti.
Investors had expected Renault-Nissan to gain control of AvtoVAZ this year or next year. The confirmation of a delay in taking over control at the company sent AvtoVAZ stock spiraling down.
AvtoVAZ’s shares on the MICEX-RTS stock exchange dropped by 6.7% by late Thursday afternoon. Shortly after the announcement the stock went down by as much as 8.6%.
The agreement between Renault-Nissan and Russian Technologies comes a month after Prime Minister Vladimir Putin inaugurated a $525 million assembly line at the Togliatti factory. The new facility will increase AvtoVAZ’s capacity to nearly 1 million cars a year.
Car industry analyst Tim Urquhart at IHS in London said the “relationship between Renault and AvtoVAZ has been fraught with management, financial and legal difficulties,” which could explain another delay in the takeover deal.
“While there is no doubt that this is a solid step towards the Renault-Nissan alliance taking full control of Russia’s biggest carmaker, it should by no means be taken for granted that the deal will progress smoothly to its conclusion in 2014,” he said.
©The Canadian Press