Read about the 1940 massacre of some 22,000 Poles in Russia’s Katyn forest and one is reminded of the hideous history that buried Europe during the last century. Today’s crash of a Katyn-bound, Soviet-made plane carrying Poland’s president and other top government officials for a commemorative ceremony brings it all home: Simply put, the memory of Stalin’s murders, lies and acts of aggression lingers across great swathes of the globe. And in Poland, fierce resentment persists because the Russian government has declined to take full responsibility for Katyn, as colleague Marcin Sobczyk wrote from Warsaw this week. If Vladimir Putin and Dimitri Medvedev want to put things right, they will fully acknowledge Stalin’s culpability in the 1941 killings of imprisoned Polish officers and others while Poland mourns the loss of its leadership and prepares for constitutionally mandated elections. Here’s a Katyn website displaying what it describes as archival photos taken in 1943 by the Nazis as they exhumed the Polish dead. A U.S. Central Intelligence Agency website offers this account of the Katyn massacres. It’s an astounding tale that starts with the Russians invading eastern Poland as the German Nazis entered from the west. Stalin’s forces took thousands of Polish officers as prisoners of war, steering them into the Katyn region and murdering them. Next: Stalin and Hitler fell out, and Stalin forged opportunistic, if temporary, ties with Poland’s government-in-exile in London. In 1943, the Nazis, now in Katyn, found the mass graves and exhumed the dead – revealing Stalin’s culpability. But Stalin blamed the Nazis and the lie stuck for decades to come, even as evidence to the contrary emerged. With Glasnost and the fall of the Berlin Wall, Mikhail Gorbachev and then Boris Yeltsin accepted responsibility and the latter revealed documentary evidence of Soviet involvement. And yet modern-day Russia’s leadership still refuses to acknowledge the country’s responsibility. It’s an incredible piece of history worth recounting on an incredible, sad day for modern Poland.
Corporate Governance, Initial Public Offerings, Mergers & Acquisitions, Retailing, Russia / Comments Off
A couple of eye-catching news tidbits on the Dow Jones Newswires: UC Rusal, the Russian aluminum behemoth, wants a Hong Kong stock exchange listing. But the Hong Kong exchange pooh-bahs have delayed approval of Rusal’s initial public offering; they want reassurance about the company’s heavy debt burden. So what has Rusal gone and done? It has put a couple of Hong Kong pooh-bahs on its board. They are Elsie Leung Oi-Sie, a Hong Kong government official, and Barry Cheung Chun-Yuen, chairman of the Hong Kong Mercantile Exchange. Smaaaart. As for Talbots, it has announced a series of financial acrobatics that seem unlikely to do much more than ensure the survival of an outmoded women’s clothing retailer. In a nutshell, Talbots is doing a deal with what’s known as a “special purpose acquisition vehicle” and will dump its majority owner, Japan’s Aeon Co. Shares are up because the money-losing company uttered sweet nothings about its 2010 outlook. I’ll have more on this odd transaction as details emerge.
Auto Industry, Germany, Labor Unions, Russia, Uncategorized / 3 Comments
If anyone should feel aggrieved by the latest twist in the General Motors-Opel-Germany spat it’s the labor unions. Only a month or so ago, they were the darlings of Germany’s political establishment. Scrambling to prevail in September federal elections, politicians from Chancellor Angela Merkel on down were labor’s best friends.
Their spiel generally went like this: Opel should be sold to the bidder who would protect the maximum number of jobs; Germany taxpayer money would be forthcoming; and only one purchaser had the workers’ interest at heart – the Magna+Sberbank combination linking a Russian bank with a Canadian-Austrian auto parts maker. Also integral to the pols’ mantra: Another potential buyer, private equity firm RHJ International, would pillage Opel’s German factories in the manner of those “vulture” funds so despised by the German chattering classes.
Antitrust, Auto Industry, Europe, European Union, Germany, Mergers & Acquisitions, Russia / 4 Comments
Someone very wise and Detroit-savvy once told me that when things seem to be going well at General Motors, just wait a few moments and things will turn sour. Well, yet again GM’s best-laid plans have gone awry: The European Commission’s antitrust boss is challenging Germany’s scheme to subsidize a consortium’s purchase of Opel. Frankly, GM’s not to blame for this snafu, which places Opel’s future in limbo. It’s the fault of Germany’s political and labor pooh-bahs (not to mention Russia’s political bosses) who pressured GM to sell Opel to auto supplier Magna International and its Russian partners.
China, Emerging Markets, India, Investing, Russia / 2 Comments
Three news developments highlight why the economies of China, India and Russia won’t expand as fast as they might, and also why investors in emerging markets will experience returns that are somewhat weaker than they could be. In China, the government’s revamped media strategy seems on the surface to represent a new opening of that industry to innovation and outside investment. But it turns out to be more about protectionism – eg protecting the interests of Chinese media interests – than about creating a regulatory and financial environment to spur development of a truly cutting-edge, lucrative industry. Have a look at a NYT piece on the issue. In India, land ownership issues remain so bolloxed up by politics and bureaucracy that Lakshmi Mittal’s ArcelorMittal may have to look elsewhere for expansion. Even if Mittal eventually manages to obtain land suitable to build its first two steel mills in India, the delays will have cost Indians jobs and revenues they might have had earlier. And then there’s Russia, where oligarch-backed Alfa group has reached a pact with Norway”s Telenor after far too many years of wrangling – mostly the result of legal peculiarities on the Russian side. The battle, which eventually pitted Norway itself against Russia, echoed other nightmarish foreign forays into Russia, including oil major BP’s very messy joint venture with TNK. It all adds up to three mighty emerging economies hampering their own prospects by engaging in nationalism, protectionism, short-term political wrangling, and oligarchic greed. All this said, overseas investors will keep playing in those markets – especially China and India, given Russia’s relatively more dysfunctional. And that’s probably wise as long as they go in knowing that in China, domestic interests will always come first and the security apparatus looms (as Rio Tinto has seen – three of its employees remain behind bars there, after all); and that in India, the lively but logjammed political environment will slow just about everything down – as will certain residual regulatory impediments to foreign ownership of Indian firms. One wishes China, India and Russia were able to recognize that their policies stymie their own prospects. Consider how China’s biggest steelmakers – by turning routine iron-ore price negotations into an ugly police case – have been forced to give up trying to wring discounts from the world’s biggest miners. Bad policy breeds bad results for all.
Auto Industry, Germany, Mergers & Acquisitions, Russia / 1 Comment
GM, whose board has been meeting the past couple of days, has scheduled a press conference tomorrow (Thursday) about Opel. The briefing will take place at 12:30 GMT in Berlin. My bet: Opel will be sold to the consortium comprising Magna International, the Canadian-Austrian auto supplier, and Russian interests. Why? Because GM’s new post-bankruptcy board doesn’t have the stomach to pump billions more dollars into the once-strong European car business, and that’s what it will take to revive Opel. The board and management dearly want to keep Opel; GM needs a solid European presence to remain a truly global player. But Job 1 (to borrow an old motto from a healthier rival) for GM is to focus on repairing its U.S. operations while continuing to generate growth in such major emerging markets as China and Brazil. Opel has been a laggard for years; selling it to Magna would solve a short-term problem for a GM which needs as few distractions as possible. With Saab in the arms of an odd Sweden-China couple (“super car” firm Koenigsegg+Beijing Automotive); Hummer en route to a sale; and Opel out of sight and mind, GM could rededicate itself to designing, engineering, making and marketing vehicles people want to buy. All this said, it will mark a sad turning point for GM and Opel if the latter is sold. Magna & crew will be hamstrung by their politically correct, financially foolish vows to save German jobs; the pledges got them the German establishment’s support and public financing but spell balance-sheet doom. (What Russian oligarchs – harboring ambitions for their own auto industry – will do with Opel remains to be seen.) In a few years, a Magna-owned Opel will still be hobbled by high labor costs, and unless Magna recruits a strong, seasoned, focused boss unbeholden to the interests behind the consortium, Opel will continue its decline. GM meanwhile will look wistfully at its Opel decision for many years to come. Occasionally, it will flirt with the concept of tying up with another auto maker with European ambitions. It will never be global again.
Auto Industry, Germany, Mergers & Acquisitions, Russia / 1 Comment
The beauty of blogging is the dialogue one has with commenters. Thank you for your thoughts. You’ve prompted me to mull the following questions, possibilities and scenarios about the developing GM/Opel story:
1) Perhaps GM’s board wants management to develop a cogent European strategy before selling Opel. Without control of Opel (and Vauxhall), GM would be mainly a U.S., Canada, Mexico, Brazil and China player. I am simplifying, but only somewhat. Europe is a mature and fairly crowded market, yes, but it’s also a solid, reliable one – and of course it’s long been an automotive trend-setter. Moreover, when eastern Europe and Russia recover from the recession, they could yet be a growth prospect for car makers.
2) Is there some sort of European alliance with, say, Nissan-Renault or another Asian (Hyundai?), European or American (Ford?) auto maker that would let GM retain a good chunk of its long-standing Opel engineering, manufacturing and marketing expertise? Has the board perhaps asked CEO Henderson and his team to explore such options?
3) Is there a Magna consortium configuration – such as including new partners and scuttling existing ones (some of the Russians, perhaps?) that would make the GM board more comfortable? Ditto RHJ – does the GM board want certain assurances from the private equity firm that it will bring the necessary operational expertise to the table?
4) Given recent economic data suggesting Europe, especially Germany and France, are poised to recover from the recession, perhaps auto market conditions – present and potential – have improved to the point where GM’s board wants to suss out sales prospects in the coming year or two before moving ahead with the Opel sale.
Happy to hear readers’ views on these and other issues I’ve not thought about.
Auto Industry, Germany, Mergers & Acquisitions, Russia / 9 Comments
General Motors’ board of directors has wisely rejected a management pitch in favor of Magna’s bid for Opel and will take some time to assess Opel’s future. It’s the right decision. GM’s management was being railroaded by the German political and labor union establishment into accepting a bid from Magna and its Russian partners, including Sberbank. The Germans preferred Magna, as so many politicians and union leaders were more than happy to say publicly, because the bidder pledged to preserve Opel jobs. This despite the fact that Opel – like just about every auto maker in the world operating in a lousy economic environment – would surely need flexibility to trim jobs if that would contribute to its long-term survival. But the Germans had leverage – no Magna, no government financial assistance. I haven’t taken sides in the bidding war between Magna and private equity rival RHJ International. Without being privy to details of each party’s offer or, for that matter, Opel’s internal finances, few would be able to determine which group would be the European car maker’s better custodian. But I’ve long felt, and have previously written, that the terms of the Opel-sale debate in Germany – jobs, jobs, jobs – were spurious and unhealthy for Opel and its workers, whose employment hinges on the company’s longevity. It’s back to the drawing board for GM’s post-bankruptcy board, Opel and Germany. That’s a good thing. And if Magna prevails in the long run, one can now reasonably hope it will follow a more considered process and public discussion. By the way, WSJ colleague John Stoll reports that the board’s decision runs counter to the pro-Magna recommendation of CEO Frederick “Fritz” Henderson and his management team. It’s a sign of the “new” GM that the board has the wherewithal to say “no” to its CEO – and it bodes well for the auto maker’s future under 61% U.S. government ownership. In its previous, stodgy incarnation, GM’s board seemed to march in lockstep with management, even when the CEO and his team could have benefited from some push-back from savvy directors. As frustrating as the prolonged Opel sale process is, this particular bump along the road toward a lighter-weight GM without some of its overseas assets is heartening.
Auto Industry, Germany, Labor Unions, Mergers & Acquisitions, Russia, Uncategorized / Comments Off
Forget about the political might of the German labor unions. General Motors’ board of directors should reject Magna International’s bid for GM’s European Opel business. The alternative buyer, a private equity firm called RHJ International, might indeed cut more jobs (the Germans’ worry) and could ultimately sell it back to GM or some other buyer, creating a period of instability (another German concern.) And today’s blog by GM Vice President John Smith – spelling out why Magna’s offer is less likely to get the board’s approval than RHJ – could be nothing more than a ploy to get a sweetener from Magna and its Russian partners. The problem with the Magna bid is the nature of the buyer itself: a consortium stitching together 1) an auto supplier based in Canada and Austria with a multiplicity of auto manufacturer customers; 2) a big bank operating in Russia, of all places, whose fortunes have lately waned; and 3) potential largesse from the German government eager as ever to kow-tow to unions (read: voters.) With RHJ, GM’s Opel goes to none other than RHJ, a team of people who purportedly know how to fix companies and eventually sell them for more money than they paid. Don’t get me wrong, RHJ wants government money, but it’s asking for less than the Magna group. What RHJ won’t do is bring Opel and its proprietary technology – some of which is shared by other parts of GM and with third-party partners – into the haze of Russia Inc., where intellectual property may not be particularly cherished. Unless Magna comes back with a supremely improved offer, GM’s board, freshly emerged from bankruptcy protection, should take the simple route. As for the unions, they’ll protest but a global scarcity of jobs mean they’ll show up at work. Continue reading…
The global financial crisis coupled with a slowing economy has some wondering if the Russian financial system will be in for a second blow.
A report in the Moscow Times last week indicates nonperforming loans at banks in Russia are at about 4.6%, according to the Russian Central Bank, but some private economists think the number is closer to 5%. While banks are working through that existing problem, a potentially larger one looms. Banks loans coming due over the next year or so total around $200 billion by some estimates. These were loans made just before the credit crisis swung into full gear last autumn. Many of these corporate loans typically mature in a year. With a GDP contraction of about 10.1% through the first six months of this year, companies certainly are not generating huge profits from which they can pay down loans.