Russia: Consolidation of the assets of Baltic Beverages Holding is in danger

The process of consolidating the assets of the largest player on the Russian beer market, Baltic Beverages Holding (BBH), may drag on indefinitely, Russian newspaper, Kommersant revealed. On June 20 a number of minority shareholders of BBH's largest asset – the Baltika brewery – opposed the impending merger of the holding's breweries, because they considered the offered terms of consolidation unfavorable. Taimuraz Bolloev, the former president of Baltika, spoke on behalf of the dissatisfied minority shareholders. According to unofficial information, Alfa Eko has allied itself with Bolloev.

On June 20, the law firm Alimirzoev & Trofimov distributed a letter on behalf of the minority shareholders of OAO Baltika Brewery. According to official information, BBH owns slightly more than 75 % of Baltika's shares, and the remaining shares are dispersed among the minority shareholders, mainly investment funds and company employees. The authors of the letter express their opposition to the proposed plan to consolidate the holding's assets – BBH officially announced a merger of all its Russian enterprises around Baltika about a month ago. The letter was written before an extraordinary meeting of Baltika's shareholders scheduled for July 7. The main point of the meeting will be Baltika's buyout of nearly 70 % of the shares of Pikra from its principal shareholder, BBH.

Baltic Beverages Holding AB was founded in 1991. It owns 18 breweries in the Baltic countries, Russia, Ukraine, and Kazakhstan, including Baltika, Yarpivo, and Vena. The company also owns the British Scottish & Newcastle and the Danish Carlsberg Breweries on a parity basis. Sales volumes of the holding's breweries were more than $300 million on the results of 2004. According to information from the Business Analyst agency, based on the results of 2004, BBH had a 35-percent share of the Russian beer market in terms of value, and sales volumes were €1.377 billion.

OAO Pikra is the largest producer of beer, soft drinks, and mineral water in Eastern Siberia. Its trademarks are Stary Drug, Kupecheskoe, and Legenda. BBH owns 70 percent of the shares, and Baltika owns about 15 percent. The company's sales volume in 2004 was about 1 billion rubles.

According to the law On Joint-Stock Companies, the majority shareholder, i.e., BBH, cannot take part in the voting on the question of acquiring Pikra's shares. Therefore, the votes of the minority shareholders will be of critical importance. Bolloev presently owns slightly less than 1 percent of Baltika's shares; therefore, he has decided to publicly urge the remaining minority shareholders to support him. As is evident from the letter, the sources of payment for Pikra's shares are unclear to the minority shareholders – from Baltika's internal funds or attracted funds. Specific claims have been presented to United Financial Group (OFG), the company hired by BBH to valuate Pikra. OFG has put a price tag of $67.5 million on the 70 percent of Pikra's shares that Baltika is supposed to buy. Thus, the entire company is worth nearly $100 million. The authors of the letter believe the value is overstated. “Our clients are worried that BBH shareholders are preparing to solve their own financial problems by means of the Baltika funds used to pay for the Pikra shares purchased at an inflated price. From the purchase and sale plan, it looks as though BBH is moving this asset from one pocket to another; in so doing, $67.5 million from Balitka's shareholders will go to BBH.”

In a conversation with the Kommersant correspondent, Bolloev confirmed he was extremely displeased with BBH's actions, which cause damage to him as a minority shareholder. “We have an independent valuator – Lenstroimaterialy – and they have estimated the value of 100 percent of Pikra at $60 million, or about half. This leads to the conclusion that the principal shareholder is overstating the value of the assets to the detriment of the interests of the minority shareholders. I have never opposed the consolidation of all of BBH's assets around Balitka. But everything must be done honestly and transparently.”

Baltika representatives were calm yesterday. “It's normal for the minority shareholders to have doubts,” company president Anton Artemyev told Kommersant. “Discussions are going on.” An anonymous source at Baltika told Kommersant that Alfa Eko was one of the initiators of the letter and noted that this company only recently became a brewery shareholder. Alfa Eko categorically refused to comment on this information yesterday.

Market participants believe that by getting involved in the growing dispute, Bolloev and Alfa Eko could seriously complicate the consolidation of BBH's Russian assets, the first stage of which is joining Pikra to Baltika. “Bolloev is Baltika's founder and one of the most authoritative people in the industry,” says Marat Ibragimov, an analyst with FK Uralsib. “Many of the company's ordinary shareholders are probably considering his opinion. And Alfa Eko has a wealth of techniques for dislodging money, including from breweries.”

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