Saturday, December 8, 2007

Renault buys quarter of Russian Lada maker AvtoVAZ

French car maker Renault agreed to buy a quarter of Russia's biggest auto maker, AvtoVAZ , aiming to revive the faded Lada brand and strengthen its hold on what will soon be Europe's largest car market.

Renault Chief Financial Officer Thierry Moulonguet told a conference call on Saturday that the Russian market, on course to overtake Germany's in a few years, was seen at 3.5 million to 4 million cars by 2015 against 2.3 million in 2007.

Mr. Moulonguet declined to reveal a price but said the market value of AvtoVAZ was $5.7-billion and that Renault was paying a ‘reasonable multiple' over earnings for its 25 per cent stake.

“They gave us a fair price, close to the market price,” said Sergei Chemezov, the head of AvtoVAZ owner, state-controlled Russian Technologies, previously known as Rosoboronexport.

Mr. Chemezov said Renault had fought off competition from U.S. General Motors, Italy's Fiat, Canada's Magna International and Germany's Volkswagen AG.

Renault and AvtoVAZ plan to make a car costing about $15,000 to tap into Russia's booming car market and will boost total car production to 1.5 million units per year, Mr. Chemezov said.

AvtoVAZ's Lada brand would be kept, said Renault CEO Carlos Ghosn: “The development of the Lada brand will be a priority.”

Mr. Chemezov said Russian Technologies would later sell part of its own stake in AvtoVAZ at an initial public offering but retain a blocking stake, which means more than 25 per cent. Mr. Chemezov said Russian Technologies would also sell stakes to two Russian steel tycoons, Alexei Mordashov and Alexei Usmanov.

Mr. Moulonguet said Renault would not raise its stake from 25 per cent but had a veto over any other industrial partners.

Mr. Ghosn and Mr. Chemezov signed a memorandum of understanding in a ceremony on Saturday transmitted by telephone from the central Russian city of Togliatti, 1,000 km east of Moscow where AvtoVAZ has its main plant with 105,000 employees.

Mr. Ghosn said Renault would help the company to increase production and exports. By boosting capacity at Togliatti, the cost per car would fall. The plant would eventually also make cars for Renault and associated Japanese group Nissan.

Once the capital of AvtoVAZ has been restructured in the first half of 2008, a holding company equally owned by Russian Technologies and Renault would control a total of 50 per cent of the shares of AvtoVAZ.

The partnership will include co-operation on engines and gearboxes for AvtoVAZ and Renault vehicles. Renault will provide car platforms and powertrains to help renew the Lada product line, which has suffered falling sales.

Renault said Russia would become the group's main market.

The sales volumes of Lada vehicles, in agreement with AvtoVAZ and its shareholders, will be consolidated by Renault.

Mr. Moulonguet said the deal's impact on 2008 results would be neutral and Renault stuck to its 2009 operating profit margin goal of 6 per cent as the impact would be mainly in later years.

Renault and Nissan are already active in Russia and the three brands combined would have a 40 per cent market share.

Arms trader Rosoboronexport secured control of the company in 2005 but has failed to achieve a turnaround.

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