Russia: Merger of Yarpivo and Voronezh breweries of BBH may be postponed indefinitely

Minority shareholders of the Voronezh brewery did not like the coefficient for exchange of shares and at their extraordinary meeting they voted against the merger with Yarpivo, The Russian Business Monitor and Vedomosti posted on June 20.

According to UFG, in 2004, Yarpivo controlled 6.6% of the Russian beer market with sales volumes of 54 million dekaliters. In 2003, revenue of Yarpivo amounted to $207 million and net profit amounted to $49.6 million. About 61% of Yarpivo shares belong to Baltic Beverages Holding (BBH). The second largest shareholder of Yarpivo is its General Director, Anatoly Arzimanov, (12%) controlling a blocking stake in Yarpivo together with the company's employees. Yarpivo controls an 81.75% stake in Voronezh brewery. Capital of Yarpivo is divided into 74.32 million shares and capital of Voronezh brewery is divided into 400,000 shares.

The plan to transfer Yarpivo and Voronezh brewery to common shares was announced in spring 2005. In early June, shareholders of Yarpivo approved the merger and a shareholders' meeting of Voronezh brewery was held on June 13. Proceeding from the estimate of Rosexpertiza, shareholders of Voronezh brewery should receive 10.6% of Yarpivo shares. Minority shareholders of the company did not like this coefficient and they voted against the merger, reported Sergei Grigoryev, representative of St. Petersburg-based investment company Energocapital (a minority shareholder of Voronezh brewery). Trader of Energocapital, Mikhail Mun, explains that the pool of shareholders of Voronezh brewery together with Energocapital controls "about 80% of the free-float" (almost 15% of shares) of the brewery. Voting with this block may become decisive because according to the law representatives of Yarpivo have no right to vote at the meeting because they were the interested party in the deal.

Grigoryev explains, "We believe that the just exchange coefficient is in the brackets of 25-30 and we consider everything below 21 a gross infringement on our rights." In any case, Energocapital has no claims against the main shareholder of Yarpivo. Grigoryev calls everything a "technical misunderstanding of managers of Voronezh brewery who can be seated at the table of negotiations."

According to a source acquainted with the situation, Energocapital was buying up shares of Voronezh brewery in the interests of BBH. Representatives of Energocapital do not hide that they are "well acquainted" with managers of BBH but do not comment on the words of the source. Mun says that private individuals, legal entities and Western investment funds are clients of his company but refuses to name them. It was impossible to obtain comments from President of BBH Christian Ramm-Smidt and Financial Director of Yarpivo Olga Belyusova refused to comment explaining that results of the voting were not summed up yet.

Analyst Marat Ibragimov, of financial corporation UralSib comments, "Bearing in mind difficult relations with General Director of Yarpivo Anatoly Arzimanov, BBH is interested in obtaining full control over the brewery." Ibragimov presumes that the coefficient on which minority shareholders of Voronezh brewery insist will lead to a situation where Arzimanov and companies allied with him may lose a blocking interest in Yarpivo merged with Voronezh brewery and will be unable to influence further fate of Yarpivo. Ibragimov presumes that to retain control over a blocking stake if the exchange coefficient is 10.6% Arzimanov needs to control at least 25.3% of Yarpivo shares. According to Ibragimov, if the coefficient on which minority shareholders of Voronezh brewery is set the interest controlled by Arzimanov may be smaller than a blocking stake.

Albert Yeganyan, partner of the legal company Vegas-Lex, says that minority shareholders of Voronezh brewery may block decision of the major shareholders. Yeganyan explains, "Corporate way to solve this problem is possible if the articles of association of Yarpivo make provisions for a procedure of shares' buyout. The judicial way is forcing minority shareholders through the court to exchange the shares at the coefficient proposed by majority shareholders. The economic way is to come to common terms through negotiations."

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