February 2010

Deal Drivers Russia

A survey and review of Russian corporate finance activity Contents

Introduction 1

01 M&A Review 2 Overall deal trends 3 Domestic M&A trends 6 Cross-border M&A trends 8 Private equity 11 Acquisition finance 13 Valuations 14

02 Industries 15 Automotive 16 Energy 18 Financial Services 20 Consumer & Retail 22 Industrial Markets 24 Life Sciences 26 Mining 28 Technology, Media & Telecommunications 30

03 Survey Analysis 32 Introduction

Prediction may be fast going out of fashion. At the end of 2008, CMS commissioned mergermarket to interview 100 Russian M&A and corporate decision makers to find out what they thought about the situation at the time and what their views on the future were. Falling commodity prices were viewed as the biggest threat, the Financial Services sector was expected to deliver the greatest growth for M&A activity and the bulk of inward investment was expected from Asia. The research revealed that two thirds of the respondents expected the overall level of M&A activity to increase over the course of 2009, with only one third predicting a fall. That third of respondents was right and, in general, the majority got it wrong or very wrong.

The survey did get some things right – the predominance of Who knows? What’s the point? We consider the point to be the domestic players, the increase of non-money deals, the in the detail. Our survey looks at the market in 2009 sector number of transactions against a restructuring background, by sector – what was ‘in’ and what was ‘out’. It talks about the late recovery from the credit squeeze. But, on the whole, the ways the deals are being structured, the values and who the survey group was too optimistic about the level of activity are the significant players. It shows that there truly was in the M&A market; reflecting perhaps a healthy positivism activity and some important plays. Also, this time, this is real among the market drivers and that 2009 was the start of data from the post-credit crunch era from which trends may a new economic beginning when, instead of following the be identified -- not forgetting that it is too early to exclude old, new trends would be created. To be sure, last year’s unexpected plays from big guns that have so far kept their predictions were pure guess work. powder dry.

Undeterred, CMS commissioned mergermarket to carry We also think the point is that it is interesting reading in itself out the same survey at the end of last year looking back and gives us cause to be positive. over the year and ahead into 2010. Only 1% of respondents this time thought that M&A activity will decrease during David Cranfield 2010, as against the views of 33% at the end of 2009. The Head of Corporate practice feeling, perhaps even among pessimists, is that it cannot CMS Russia get any worse for those of us who support the mergers and acquisitions market, but there is a general consensus that the market will take time to recover. A smaller majority than last year, but a majority all the same, believes M&A activity will increase, although a large number forsee no change. 2009 seems to have been a year for reforming, planning and above all, waiting. However, our survey group seems to be cautious about whether 2010 will really see the end of the waiting game.

In December 2009, mergermarket interviewed 100 Russian M&A and corporate finance decision makers in order to garner their views on various aspects of the current Russian M&A environment.

In addition, mergermarket supplemented this research with deal type and sector analysis. Finally, the report has been underpinned by mergermarket’s historical M&A data.

1 Deal Drivers Russia - M&A Review 01 M&A Review

2 Deal Drivers Russia - M&A Review Overall deal trends

So impressive had its recent commodity-fuelled growth been, the Russian economy, backed by significant state influence, was arguably expected to effectively insulate itself from the worst effects of a global downturn. However, this viewpoint has lost validity in recent months as Russia has continued to feel the acute impact of the financial crisis. Rather tellingly, the International Monetary Fund estimates that GDP fell by a significant 7.5% in 2009.

It is somewhat unsurprising that the contraction in the To an extent, announced activity has been driven by large economy has had a negative impact on investment appetite groups moving to dispose of assets and restructure their with the M&A market witnessing a sharp decline in the portfolio. Oleg Deripaska’s Basic Element is a case in point level of deal making. Indeed, 2009 saw a total of 164 deals in this regard having moved to dispose of a 25% stake announced in Russia, worth a collective €17.6bn. Compared to in Strabag, the listed Austrian construction group. In a the previous 12 months, this represents a fall of 40% in terms transaction valued at €494m, Rasperia Trading, a wholly owned subsidiary of Basic Element, sold out to Raiffeisen Overall M&A trends in Russia Holding Niederoesterreich-Wien and the Haselsteiner family. The deal enabled Deripaska’s group to repay debt owed to 100 30,000 Raiffeisen, although the company kept an as yet unexercised 90 call option to reacquire the stake at a later date in 2010. 25,000 80 Elsewhere, aluminium producer United Company RUSAL sold 70 20,000 a 4.5% stake to domestic investment fund Onexim Group for 60 an undisclosed consideration as part of its debt restructuring 50 15,000 process. Under the terms of the agreement, the Deripaska- olume of deals V 40 alue of deals ( € m) V run UC RUSAL restructured US$2.8bn worth of debt with 10,000 30 Onexim Group’s overall stake in the company increasing to

20 18.5%. Interestingly, AFK Sistema also moved to reshuffle 5,000 10 its portfolio, brokering significant deals on both the buy and sell-side. The largest deal saw the conglomerate dispose of a 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 50.91% stake in telecommunications operator OAO Comstar Volume Value United TeleSystems to domestic firm Mobile TeleSystems for a consideration of €1.41bn. of deal volume while valuations declined by 52%. Significant obstacles to M&A remain with buy-side parties still holding the Deal size split of Russian M&A activity: 2009 belief that corporate valuations have not sufficiently corrected since the acute onset of the financial crisis. As a result, price 5% Not disclosed dislocation is hindering activity with acquirers unwilling to 3% <€15m expose themselves and non-distressed vendors generally 9% €15m-€100m preferring to hold onto assets until sale conditions become €101m-€250m €251m-€500m more favourable. 45% >€500m

26%

12%

3 Deal Drivers Russia - M&A Review

Leverage remains difficult and expensive for companies to Looking at the sector breakdown of M&A activity in 2009, obtain and this has led to increasingly creative deal structures the Energy, Mining & Utilities space continued to witness the being used in order to counteract the austere debt financing most significant transactions in Russia. Indeed, three of the environment. Recent months have seen companies attempt top five deals of the year were seen in the sector with the to do non-cash transactions, which is remarkable given that largest deal seeing Gazprom exercise its option to acquire a cash has traditionally been king in the Russian M&A market. 20% stake in oil producer JSC Gazprom Neft from Eni, the One such deal that came to the market in 2009 was the listed Italy-based oil and gas group. €346m buy of the Oil Field Services enterprises of TNK-BP Conversely, the Financial Services space has witnessed International by Weatherford International, the US-based less activity than expected, especially at the top-end of the provider of services to the oil and gas industry. The deal market. Huge potential for consolidation remains, although saw Weatherford issue 24.3m shares as the companies the global financial crisis has curtailed the acquisitive entered into a registration rights agreement. Such deals are aspirations of the larger global players. The overwhelming particularly beneficial to distressed vendors as firms can ease majority of banks have been preoccupied with repaying cash flow issues while also ‘keeping skin in the game’ to reap bail-out funds and reducing their exposure to toxic assets. the benefits of any future upside. Furthermore, the deals that have come to the market have mostly been seen in the traditional hotbeds of activity with Russian M&A sector split by value: 2009 many Financial Services firms perceiving Russia to be too risky a place to broker deals, even in a benign economic 1% 1% 1% climate. Indeed, compared to other BRIC countries, Russia is

Energy, Mining & Utilities deemed high risk with widespread legislative reform required 4% TMT 5% to attract investment and increase market confidence. Defence 5% Financial Services Private equity activity has also been largely subdued with Consumer funds continuing to be preoccupied with preserving value in 6% Leisure

Construction existing portfolio companies. The debt financing environment

6% Transportation and the increasingly risk-averse nature of the asset class Real Estate 52% has also meant that there has been very little activity from Industrials & Chemicals Western European and North American funds. Looking at announced activity, the private equity arms of state-backed 19% Russian banks have largely driven financial investor deal

Russian M&A sector split by volume: 2009

While deal structures have become more creative, they have 2% 1% also become increasingly complicated with transactions 2% Consumer

taking substantially longer to complete. Negotiations over 3% Energy, Mining & Utilities 4% 18% company valuations are now generally more robust and TMT exhaustive, in stark contrast to the pre-crisis large-cap 6% Financial Services Industrials & Chemicals

transactions that were generally brokered at break-neck Construction 7% speed. The increased caution in the Russian M&A market is Leisure also apparent post-deal with firms placing increased emphasis 17% Business Services on post-merger integration in a bid to ensure that an M&A Real Estate 12% Transportation deal ultimately creates value in the long-term. Agriculture

Pharma, Medical & Biotech

15% 13%

4 Deal Drivers Russia - M&A Review

flow. Indeed, the top buyout of 2009 saw JSC VTB Capital, approximately €1.7bn. Intriguingly, some of these assets have alongside TPG Capital, acquire a 35.4% stake in hypermarket also been mooted as potential IPO candidates, suggesting chain OOO Lenta for a consideration of €77m. Private equity that the recent rally in global equity markets has increased buyout and exit activity in the coming months is set to remain confidence and potentially opened the listing window. Indeed, depressed, the fundamental issue remains that the asset class following a long and protrcted process, the beginning of targets multiples which simply cannot be achieved given the 2010 saw UC Rusal’s listing in Hong Kong. According to the present stake of the Russian market. Financial Times, the company was valued at a 15% premium to the Aluminum Corporation of China, adding credence to the Going forward, the Russian M&A market is set to see an viewpoint that the IPO market will enjoy a resurgence in the increase in the level of overall deal making in 2010. A wave of coming months. However, UC Rusal’s debut was not initially privatised assets is likely to drive activity, with the government successful with its share price falling by 10.6% on the first day recently moving to announce that it is looking to sell shares in of trading. 14 strategic and 435 non-strategic companies, raising a total of

TOP 10 OVERALL DEALS: 2009 Ranking Announced Status Target Target sector Target Bidder company Bidder country Seller company Seller Deal date company country country value (€m) 1 Apr-09 C JSC Gazprom Energy Russia OAO Gazprom Russia ENI SpA Italy 3,089 Neft (20% stake) 2 Mar-09 C Bashkir Oil Energy Russia AFK Sistema Russia Agidel-Invest Russia 1,894 and Energy LLC; Inzer-Invest Group LLC; Ural-Invest LLC; Yuryuzan- Invest LLC 3 Jun-09 C OAO TMT Russia Deposit Insurance Russia KIT Finance Russia 1,513 Rostelecom Agency; (40% stake) Vnesheconombank 4 Aug-09 C OAO Comstar TMT Russia Mobile TeleSystems Russia AFK Sistema Russia 1,412 United OJSC TeleSystems (50.91% stake) 5 May-09 P OAO Novatek Energy Russia Volga Resources Luxembourg Cartagena Russia 1,125 (13.13% SICAV SIF SA Development stake) Inc 6 Nov-09 P United Aircraft Defence Russia The Federal Agency Russia 1,054 Corporation for Federal Property (32.67% Management; stake) Vnesheconombank 7 Dec-09 P Gostinichnaya Leisure Russia Russia Real Estate Russia The Moscow Russia 705 Kompania Fund LP City (51% stake) Government 8 Mar-09 C OJSC Polyus Mining Russia Suleiman Kerimov Russia Vladimir Potanin Russia 541 Gold (20% (Private Investor) (Private investor) stake) 9 May-09 C OAO Yamal Energy Russia OAO Novatek Russia Volga Resources Luxembourg 465 LNG (51% SICAV SIF SA stake) 10 Oct-09 C Belon Group Mining Russia Magnitogorsk Iron Russia Sapwood Cyprus 426 OJSC (41.3% and Steel Works Investments Ltd stake) OJSC C = Completed; P = Pending

5 Deal Drivers Russia - M&A Review Domestic M&A trends

Russia’s domestic M&A market slowed considerably over 2009, similar to transaction trends in peer markets throughout Europe and further afield, which were also badly affected by the fallout from the global financial crisis. In the year, the total domestic deal count amounted to 117 transactions collectively valued at €14.1bn, a decrease of around 40% from the prior year in both volume and value terms.

While there was an initial expectation that the financial crisis Elsewhere, AFK Sistema was active on both the buy and would be short-lived in the Russian M&A market, the legacy sell-sides for two of the top domestic transactions of the of overheated prices from the 2007-2008 period has meant year. First, the group acquired Bashkir Oil and Energy Group, that even after crisis there have still been some difficulties in an investment company holding controlling stakes in six matching buyer and seller price expectations. Add to this, the Energy firms, for a total consideration of€ 1.9bn from a lack of affordable leverage from Russian lenders and a broader consortium of Russian charity funds. The deal increases sense of uncertainty and risk aversion among corporates in Sistema’s shareholding in all of the six firms, for which it the hostile business climate, then the fall in deal flow is not already owned minority stakes. In accordance with Russian surprising. legislation, Sistema will make an offer to acquire the remaining stakes in the companies. Later in the year, in a deal involving Domestic M&A trends in Russia two subsidiary holdings, Sistema divested a 50.91% stake in Comstar United TeleSystems for €1.4bn to Mobile 70 25,000 TeleSystems (MTS), a company majority owned by Sistema. 60 The deal will give MTS a platform for greater growth in 20,000 Russia’s broadband market. 50 Looking at distressed transactions, the most notable 15,000 40 situation saw aluminium giant UC RUSAL sell a 4.5% stake to investment firm Onexim Group in an undisclosed debt-to- olume of deals 30 V 10,000 alue of deals ( € m) V equity swap, understood to be worth around US$2bn. The 20 deal is part of an ongoing and wider restructuring of some 5,000 US$16.8bn in liabilities that helped open the way for a 10 Hong Kong listing of the group.

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Elsewhere, KIT Finance, the Russian investment bank, sold 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value off a 40% holding in Rostelecom, the listed telecoms firm, with 30% and 10% going to two state-controlled entities, the In the domestic market, M&A players have generally Deposit Insurance Agency, the deposit-insurance provider, and eschewed ambitious mega-deals with activity principally led by Vnesheconombank (VEB), the Russian development lender. large conglomerate portfolio restructuring and, more generally, The two SOE’s paid €1.5bn for KIT after the group defaulted by defensive and distressed bear-market M&A. Indeed, on obligatory repurchase agreements to clients amid an restructuring of portfolios by some Russian high-net-worth intensification of the financial crisis in the autumn of 2008. investors have accounted for a number of notable transactions brokered in 2009. Vladimir Potanin, head of Interros, the Not surprisingly, the Energy, Mining & Utilities deal market investment holding company with interests in Mining and was also the most active space for domestic M&A in 2009, other activities, divested a 20% stake in OJSC Polyus Gold for accounting for nearly 20% of total activity and over 50% of €541m and a further 15% stake for €404m through Interros. deal value. The top domestic transaction in the year saw On the buy-side, business tycoon Suleiman Kerimov acquired Gazprom OAO exercise its option to acquire a 20% stake in these assets both as a private investor and then through JSC JSC Gazprom Neft from Italian oil and gas group Eni SpA for Nafta-Moskva, the investment holding firm that he controls. €3.1bn, taking its total share in the company to 95.68%.

6 Deal Drivers Russia - M&A Review

The outlook for the domestic deal market in 2010 appears makers have become more innovative, surmounting liquidity bright compared to 2009. Further non-core disposals and obstacles by financing transactions in equity based deals – complimentary bolt-on buys by the larger firms should bolster this is something completely new to the market. Lastly, the activity with market fundamentals also likely to continue government’s privatisation drive will help to shore up M&A to improve. Indeed, the price dislocation that stymied deal activity as assets come to market in 2010 with domestic flow through much of 2009 is starting to unwind, helping to players tipped to be the biggest beneficiaries of state unlock deal flow as vendors become more willing to sell in a divestments. rising market. Financing conditions are also showing tentative signs of easing, although it is noteworthy that Russian deal

TOP 10 domestic DEALS: 2009 Ranking Announced Status Target Target sector Target Bidder company Bidder country Seller company Seller Deal date company country country value (€m) 1 Apr-09 C JSC Gazprom Energy Russia OAO Gazprom Russia ENI SpA Italy 3,089 Neft (20% stake) 2 Mar-09 C Bashkir Oil Energy Russia AFK Sistema Russia Agidel-Invest Russia 1,894 and Energy LLC; Inzer-Invest Group LLC; Ural-Invest LLC; Yuryuzan- Invest LLC 3 Jun-09 C OAO TMT Russia Deposit Insurance Russia KIT Finance Russia 1,513 Rostelecom Agency; (40% stake) Vnesheconombank 4 Aug-09 C OAO Comstar TMT Russia Mobile TeleSystems Russia AFK Sistema Russia 1,412 United OJSC TeleSystems (50.91% stake) 5 Nov-09 P United Aircraft Defence Russia The Federal Agency Russia 1,054 Corporation for Federal Property (32.67% Management; stake) Vnesheconombank 6 Mar-09 C OJSC Polyus Mining Russia Suleiman Kerimov Russia Vladimir Potanin Russia 541 Gold (20% (Private Investor) (Private investor) stake) 7 May-09 C OAO Yamal Energy Russia OAO Novatek Russia Volga Resources Luxembourg 465 LNG (51% SICAV SIF SA stake) 8 Oct-09 C Belon Group Mining Russia Magnitogorsk Iron Russia Sapwood Cyprus 426 OJSC (41.3% and Steel Works Investments Ltd stake) OJSC 9 Apr-09 C OJSC Polyus Mining Russia JSC Nafta-Moskva Russia Interros Russia 404 Gold (15% Company stake) 10 Sep-09 P ANK Bashneft Energy Russia AFK Sistema Russia 254 JSC (23.48% stake) C = Completed; P = Pending

7 Deal Drivers Russia - M&A Review Cross-border M&A trends

Similar to economies across the world, the Russian market has witnessed a marked fall in cross-border foreign investment flows since the onset of the global financial crisis. Foreign and Russian companies have reigned in spending to save precious cash and in terms of M&A activity, the fall in investment persisted throughout the whole of 2009 for both inbound and outbound transactions. Nevertheless, it is noteworthy that the severity of the fall off in deal flow gradually dissipated over the course of the year.

Inbound M&A Not surprisingly, the top inbound buy came to market in the Energy niche. The deal saw Volga Resources SICAV SIF, the While Russia remains an attractive market for overseas Luxembourg-based holding company of Russian investor buyers, particularly in resource-based sectors, the country’s Gennady Timchenko, agree to acquire a 13.13% stake in OAO leadership has been less successful in projecting a positive Novatek, an oil and gas firm, for an estimated consideration image abroad to attract foreign direct investment (FDI). This of €1.1bn. Interestingly, plays by Russian-controlled holding is especially the case when compared to other big emerging companies abroad are relatively common in the cross-border economies – such as its peer BRIC nations, Brazil, India and deal market with Cyprus being a key staging ground for China. Nevertheless, there has been some effort in tempering inbound M&A to the Russian market. the political rhetoric and meaningful changes in the legal arena, although such changes rarely filter through the foreign press. In 2009, companies from Western Europe were the most active buyers in the Russian market with a total of 29 In terms of inbound M&A, the number of transactions totalled transactions valued at €1.8bn. However, US companies, 47 deals collectively valued at €3.4bn last year, compared to among the most active investors into Russia in recent years, 89 deals worth €12.7bn in 2008. The Consumer space was ranked as the top acquirers from any single country in the year, the top destination for inbound deals in 2009, accounting for brokering eight transactions worth a combined €1.2bn.

The outlook for inbound M&A over 2010 remains Inbound M&A trends in Russia comparatively bright, although deal activity is likely to remain subdued over the first half before picking up as the global 40 10,000 economic recovery becomes more consolidated. Foreign 9,000 35 buyers will likely continue to target established sectors such as 8,000 Energy, Mining & Utilities and the Consumer space. However, 30 7,000 in the Financial Services sector, one of the top investment 25 6,000 hubs of recent years, foreign banks are likely to largely eschew

20 5,000 acquisitions, preferring to use cash to either bolster their capital olume of deals V 4,000 alue of deals ( € m) ratios or broker deals in more traditional hotbeds of activity. 15 V

3,000 10 2,000 Outbound M&A 5 1,000 The inclement foreign investment climate that hindered 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 inbound deal activity to Russia was little better for domestic 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value firms looking to source acquisitions overseas in 2009. Indeed, the number of outbound transactions fell by some 35% year on year to 39 deals, although aggregate valuations rose on the around one-third of total transactions valued at a combined back of Vimpel-Communications’ landmark tie-up of Kyivstar, the €279m. The Energy, Mining & Utilities space, traditionally the Ukrainian mobile operator, for an equity consideration of 3.6bn. principal investment hub for overseas acquirers, ranked as the € second most active investment area in terms of deal volume with six transactions worth €1.6bn.

8 Deal Drivers Russia - M&A Review

TOP 10 INBOUND DEALS: 2009 Ranking Announced Status Target company Target sector Target Bidder company Bidder country Seller company Seller Deal value date country country (€m)

1 May-09 P OAO Novatek Energy Russia Volga Resources Luxembourg Cartagena Russia 1,125 (13.13% stake) SICAV SIF SA Development Inc 2 Dec-09 C Gostinichnaya Leisure Russia Russia Real Estate USA The Moscow Russia 705 Kompania (51% Fund LP City stake) Government 3 May-09 C TNK BP Energy Russia Weatherford USA Novy Russia 346 International Ltd International Ltd Investments Ltd (Oil Field Services enterprises) 4 Oct-09 C OSAO Rossija Financial Russia Viktor Pinchuk Ukraine OAO UK Russia 241 Services (private investor) Trastkom 5 Mar-09 C Troika Dialog Financial Russia Standard Bank South Africa 237 Group (33% Services Group Ltd stake) 6 Apr-09 C Russian Alcohol Consumer & Russia Central European Poland Lion Capital LLP United 109 Group (12% Retail Distribution Kingdom stake) Corporation 7 Nov-09 P Promsvyazbank Financial Russia European Bank for United 107 JSCB (11.75% Services Reconstruction and Kingdom stake) Development 8 Sep-09 C OOO Lenta Consumer & Russia JSC VTB Capital; USA Oleg Zherebtsov Russia 77 (35.4% stake) Retail TPG Capital LP (Private Investor) 9 Sep-09 C Yandex TMT Russia Baring Vostok USA Oradell Capital Russia 69 (9% stake) Capital Partners (BVCP); Tiger Global Management LLC; UFG Asset Management 10 Oct-09 C Nobel Oil Group Energy Russia China Investment China 67 (45% stake) Corporation C = Completed; P = Pending

Post-deal, the two firms will merge to form a new company, In terms of the sector breakdown of activity, the Industrials VimpelCom, which will be listed on the NYSE. The combined & Chemicals niche has been the largest target area by M&A entity will become one of the largest emerging markets volume in recent years, accounting for over a quarter of total mobile operators, with approximately 85m subscribers. The transactions since 2004. In value terms, the sector ranks as management foresees significant future growth potential, both the second largest after Energy, Mining & Utilities, a deal within its existing markets and through potential expansion market with comparatively pricier assets, in which valuations into the CIS, Asia and Africa, which may bode well for future were upheld by the hard commodities and oil and gas boom outbound M&A activity. which only faltered in 2008.

Looking at outbound markets, Russian companies have mainly targeted assets in the US, UK and the neighbouring countries of Central & Eastern Europe in recent years. In 2009, there was little deviation from longer term trends as the Ukraine remained the top foreign target market for Russian bidders with five deals transacted; the Vimpel-Communications deal was the only transaction among these carrying a disclosed value. In addition to this, Cyprus has also figured prominently in outbound cross-border transactions in recent years given the outpost of Russian holding companies on the island nation.

9 Deal Drivers Russia - M&A Review

In 2009, however, Energy, Mining & Utilities was the Outbound M&A trends in Russia most active sector with 12 transactions in the year, which

surpassed the annual deal count of eight for 2008. Depressed 25 8,000 corporate valuations may have helped to unlock deal flow with 7,000 acquirers more eager to buy while prices were relatively low. 20 Despite this, aggregrate valuations in 2009 still totalled a not 6,000

insignificant€ 3.9bn 5,000 15

Going forward, Russian acquisitions in foreign markets may 4,000

well gain steam in line with the economic recovery. The IMF is olume of deals V 10 alue of deals ( € m) 3,000 V forecasting real GDP growth of 1.5% in 2010, compared to an estimated 7.5% contraction in 2009. Large conglomerates will 2,000 5 be best placed to pursue outbound opportunities, particularly 1,000 for players such as Gazprom and Rosneft in the Energy niche 0 0 who are tipped by some analysts to actively eye key refinery Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 assets in the coming year. Volume Value

TOP 10 OUTBOUND DEALS: 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Oct-09 P Kyivstar GSM CJSC TMT Ukraine VimpelCom Russia Altimo; Telenor Russia 3,637 ASA 2 Mar-09 C MOL Hungarian Oil Energy Hungary OJSC Russia OMV AG Austria 1,415 and Gas Public Ltd Surgutneftegaz Company (21.2% stake) 3 Dec-09 C Lukarco BV (46% Energy Netherlands Lukoil OAO Russia BP plc United 1,094 stake) Kingdom 4 Apr-09 C Sistema Shyam TMT India Government of Russia AFK Sistema Russia 530 TeleServices Ltd Russian Federation 5 Jun-09 C Total Raffinaderij Energy Netherlands Lukoil OAO Russia Total SA France 431 Nederland NV (45% stake) 6 Apr-09 C Bluestone Coal Mining USA Mechel Mining OAO Russia Justice Family USA 410 Group Group LLC 7 Feb-09 C NS Group Inc (49% Industrial USA Trubnaya Russia Evraz Group SA Russia 396 stake) products and Metallurgiczeskaya services Kompaniya 8 Jun-09 C KazakhGold Group Mining Kazakhstan OJSC Polyus Gold Russia 358 Ltd (50.1% stake) 9 Dec-09 P BPS-Bank Financial Belarus Sberbank Russia Government of Belarus 191 (Belpromstroibank) Services Belarus JSC (93.27% stake) 10 May-09 C Sibir Energy plc Energy United JSC Gazprom Neft Russia 172 (7.8% stake) Kingdom C = Completed; P = Pending

10 Deal Drivers Russia - M&A Review Private equity

Over the past year, financial investors have retreated from deal making, largely concentrating on the preservation of value in existing portfolio companies amid the hostile business environment. Equity sponsors looking to source deals in the Russian market further encountered difficulties in getting the right multiples, an essential part of the private equity buyout model.

Consequently, private equity transaction volumes and deal from private investor Oleg Zherebtsov for an estimated values shrank to a fraction of that seen in preceding years consideration €77m. It is noteworthy that interest for Lenta with just eight deals worth €276m transacted in the Russian was strong with Zherebtsov reportedly abandoning an market in 2009, compared to 27 deals valued at €1.7bn in earlier agreement to sell to financial investor Marshal Capital the previous 12 month period. While private equity buy-side Partners. Furthermore, there was rumoured interest from activity dominated in 2009, the largest transaction brokered key trade players in the form of Wal-Mart, the world’s largest in the year was in fact an exit. The deal saw Lion Capital, the retailer, and France’s Carrefour. UK-based buyout group, agree to divest a 12% equity stake in vodka distiller Russian Alcohol Group to Central European Private equity exit trends in Russia Distribution Corporation (CEDC), the US-listed alcohol importer and distributer, for €109m. Interestingly, the structure of the 7 1,600 deal, which will see CEDC’s stake in the business eventually 1,400 rise to 54%, will see the acquisition phased in over five years 6 1,200 in multi-stage equity purchases. The arrangement is indicative 5 of a very nascent trend underway in Russia in which both 1,000 financial and strategic investors employ more innovative 4 800 deal craft in an attempt to largely bypass a still challenging

olume of deals 3 V alue of deals ( € m) financing environment. 600 V

2 400

1 Private equity buyout trends in Russia 200

0 0 12 1,800 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09

1,600 Volume Value 10 1,400 Going forward, private equity activity in Russia in 2010 will 8 1,200 likely pick up over the second half of the year, initiated by 1,000 domestic private equity firms with some of the state-backed 6 800 Russian banks providing funds for investment. Looking at olume of deals V alue of deals ( € m) V foreign players, it is expected that some overseas funds with 4 600 strong local knowledge, such as Baring’s private equity arm in 400 2 Russia for instance, may also be early comers to the market. 200 Notably, Baring Vostok has remained active despite the economic

0 0 downturn, making two plays on the buy-side in 2009. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value

In terms of buyouts, the largest acquisition undertaken saw VTB Capital, the private equity arm of the investment bank, and TPG Capital agree to acquire a 35.4% stake in OOO Lenta, the retail hypermarket and cash & carry store chains,

11 Deal Drivers Russia - M&A Review

On the whole, however, western funds are still eschewing On the sell-side, a return to growth and firming valuations Russian assets, instead investing closer to home where will lead to more viable exit routes for financial investors from perceptions of risk are comparatively lower. But private equity portfolio companies. Likewise, these same factors should help activity is starting to recover in Western Europe and the US, as to improve the quality and quantity of assets coming to market well as in Central & Eastern Europe where there are stirrings of for private equity bidders. activity, which bodes well for the future return of foreign capital to the Russian market. Indeed, several funds are sitting on dry powder, with capital allocations for the Russian and CIS markets, which will need to be deployed at some point in the future.

TOP PRIVATE EQUITY DEALS: 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Deal type Deal date sector country value (€m) 1 Apr-09 P Russian Alcohol Consumer & Russia Central European Poland Lion Capital LLP Exit 109 Group (12% stake) Retail Distribution Corporation 2 Sep-09 C OOO Lenta (35.4% Consumer & Russia JSC VTB Capital; USA Oleg Zherebtsov IBI 77 stake) Retail TPG Capital LP (Private Investor) 3 Sep-09 C Yandex (9% stake) TMT Russia Baring Vostok USA Oradell Capital SBO 69 Capital Partners (BVCP); Tiger Global Management LLC; UFG Asset Management 4 Sep-09 P Depo Computers TMT Russia Depo Computers Russia IBS MBO 21 (MBO Vehicle) C = Completed; P = Pending

12 Deal Drivers Russia - M&A Review Acquisition finance

The economic downturn has had a profound impact on the global M&A market. Not only has general market confidence plummeted but the austere debt financing environment has hindered the acquisitive aspirations of firms who had been looking to broker deals. Indeed, given the fallout from the financial crisis, many banks have been unwilling to provide leverage at acceptable terms which in turn has adversely impacted upon the overall level of deal making, particularly from financial investors, in Russia and beyond.

The majority of recent lending in Russia has emanated from Creative deal structures were seen to good effect in the fourth state-owned institutions as the government has looked to quarter of the year when freight transportation company inject liquidity and kick-start the domestic economy. VTB GlobalTrans Investment moved to acquire an indirect 50% Bank, 85.5% owned by the Russian government, is one such stake in OOO BaltTransServis (BTS), the railway transportation institution which has stepped up its lending to domestic firms. service operator, for an equity consideration of €179m. Indeed, a prime example of this was seen in June 2009 when The deal was structured so that the vendor, Transportation Bank VTB North-West provided a €23m loan to transport Investment Holding Ltd (TIHL), transferred part of its company Lengipotrans to help fund the €39m acquisition of a ownership in a Cyprus-based holding company to GlobalTrans. 50% stake in Roszheldorproject via its subsidiary Transproekt The holding company owns 90% of BTS and post-deal TIHL Finans. Interestingly, Lengipotrans utilised around €9m of the will still hold a 40% in BTS with an unrelated third party financing from VTB to replenish its working capital. holding the remaining 10%.

The European Bank for Reconstruction and Development Looking back over the previous 12 months, it can be seen (EBRD), owned by 61 countries and two intergovernmental that Russian companies have generally been over-reliant on institutions, has also significantly increased its investment state-owned banks to provide financing for not only M&A, activity in 2009, supporting viable companies throughout but wider corporate survival. This has proved to be effective the downturn. Tellingly, alongside Indian tea producer Tata up to a point, although going forward the state will need to Tea, EBRD acquired a 51% stake in Grand Tea House during seriously look to implement further financial and regulatory the first quarter of the year. Elsewhere, state banks have reform in order to attract increased lending, and indeed overall also assisted with the restructuring of domestic firms. investment, from foreign sources. A number of important Vnesheconombank (VEB) has been particularly active in this lessons should have been learnt in recent months and while regard, having been involved in the 98.95% stake acquisition the debt financing environment undoubtedly improved over of investment bank KIT Finance by OJSC Russian Railways the course of 2009, it will likely take until at least H2 2010 and TransFinCapital (TFK). Post-deal, the investors refinanced before the market reaches a level of normality. KIT Finance’s mortgage portfolio and increased its capital by selling the banks’ ordinary shares in OAO Rotelecom to VEB and the Deposit Insurance Agency (ASV).

While state-run banks have undoubtedly helped to ease liquidity issues, the availability of leverage has remained an issue with firms increasingly using more creative deal structures in a bid to bridge to financing gap. The last 12 months has seen more mezzanine financing while companies have also attempted to respond to the changing deal making landscape by undertaking all share deals. This has been a significant development in the Russian M&A market considering that cash has traditionally been king.

13 Deal Drivers Russia - M&A Review Valuations

After years of robust company valuations in the boom years leading up to the financial crisis, asset prices have clearly come under an immense downward pressure since the collapse of Lehman Brothers in the autumn of 2008. In the past year, concomitant price corrections to reflect the new market reality are clearly observable, particularly in situations where distressed assets are coming to market at fire sale prices.

There is still a degree of price dislocation evident in the Although there is a limited data set owing to low levels Russian M&A market, stymieing deal flow as misaligned of disclosure of deal financials in the Russian market, exit price expectations persist on both the buy and sell-sides. That multiples also reveal more subdued valuations over 2009. The said, the price gap is beginning to narrow as the recovery adjusted EBITDA multiple (i.e. excluding the top and bottom progresses, helping to unlock deal flow with vendors more 2.5% of the original data series) fell to just 7.7% in 2009, willing to sell and acquirers eager to snap up assets at down from 26.7% in the 2004-2008 period. Likewise, the comparatively cheaper prices in a still recovering market. average bid premia – calculated against share closing price one day prior – for public M&A transactions over the same five-year Looking at figures from last year, the average deal size fell to period stood at 16.8%, but fell sharply to -13.5% in 2009. €107m from €134m in 2008. Average deal sizes varied widely over 2009, peaking at €158m in Q2 on the back of six large- It is relatively safe to assume that the worst of the financial cap (<250m) transactions coming to market - excluding Q2, crisis has passed in the Russian market, with the downward the average deal size was just €86m. pressure on company valuations gently easing in step with the wider economic recovery, more visibility in terms of Furthermore, the proportion of non-disclosed value deals market direction, as well as prospects for better financing nearly doubled in 2009 to around 45% of overall M&A. As conditions. Barring a W-shaped recovery, these factors should most undisclosed value transactions are in the small and mid- support company valuations with equity prices firming and the cap market range (>250m), the rise probably masks greater recovery consolidating, particularly over the third and fourth activity in this lower-end value segment. That said, advisers quarters of 2010. still did not see the level of activity in the second-tier segment of the market they had anticipated in 2009, which may partly reflect the ongoing effects of the valuation gap.

14 Deal Drivers Russia - M&A Review 02 Industries

15 Deal Drivers Russia - Industries Automotive

M&A activity in the Russian Automotive sector has seemingly stalled, with just one transaction coming to market over the course of 2009. This particular transaction saw ZAO UBT-Uralvagonzavod, the Russian company engaged in the distribution of railway equipment, acquire OAO Uralshina, the Russian tyre manufacturer, for an undisclosed sum thought to be in the range of €18m. The vendor in this case was Sibur Holding JSC, the Russian petrochemicals company, who initially bought the company out of bankruptcy for just €6m back in 2004.

Sibur Holding could have been motivated to sell out of OAO from expected increases in import tariffs as well as the recent Uralshina because it is now looking to acquire the beleaguered introduction of a car scrappage scheme which will see buyers Russo-Dutch tyre manufacturer, Amtel-Vredestein, which is of new locally-manufactured vehicles receive a RUB50,000 burdened with US$600m worth of debt. If the deal comes rebate if they trade in their 10-year-or-older model. through, Sibur will most likely merge Amtel-Vredestein with its Furthermore, looking ahead to the future, it must be noted Sibur-Russian Tyres division. that the lone transaction announced in 2009 is not broadly Despite the low levels of activity, there are signs that 2010 indicative of wider trends – it must been seen as a direct result could bring an increased deal flow with a number of deals of the financial crisis which makes investments in an already challenging market even more risky. Looking back over the Automotive M&A trends in Russia past six years, 24 Russian Automotive assets have changed hands for a total of €1.7bn. In volume terms, more than half 4 1,000 of these took place in 2007 and 2008, when 13 acquisitions

900 worth a total of €1.6bn were announced. The first quarter of

800 2008 was the pinnacle of this particular boom period, with 3 700 three deals, worth €864m taking place – propelled, to a large extent, by the announcement of the largest Automotive 600 transaction in Russia over the six-year period. 2 500 olume of deals V 400 alue of deals ( € m) This particular transaction saw Renault SA, the French V

300 automobile manufacturer, acquire a 25%-plus-one-share stake 1 200 in AvtoVAZ, its Russian counterpart, for €768m including earn- outs, which are payable in 2010 and are based on AvtoVAZ’s 100 earnings performance in 2008 and 2009. It is unlikely that the 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 earn-out will be paid in full since the company went through a 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value severe restructuring in 2008 following the onset of the credit crisis. Indeed, in November 2009, the Russian government, along with Renault, announced a US$1.7bn rescue package already in the offing. For example, Germany’s Daimler for AvtoVAZ with Renault contributing US$369m worth of has recently expressed an interest in increasing its 10% technology and know-how. The restructuring will allow Renault stake in heavy trucks maker Kamaz. Market research is to maintain its stake in the company, which was under threat also encouraging with it being predicted that the Russian following an earlier ultimatum from the authorities warning Automobile market will be the third-largest in the world by Renault that its holding would be diluted if it did not assist in 2012 after the US and China. Any such rebound could be the planned shake-up. driven by a new raft of government policies which will – among other things – look to curb the import of second-hand foreign-made cars older than five years. Further boosts to domestic demand for Russian vehicles are also likely to stem

16 Deal Drivers Russia - Industries

The deal highlights the relatively high number of tie- However, while foreign corporates have seemingly taken a ups between foreign and domestic Russian Automotive bullish view on the business prospects of Russian Automotive manufacturers. Inbound acquisitions of Russian assets businesses, the same cannot be said for financial investors. In accounted for 58% of all such deals by volume and some 74% fact, just two private equity-related transactions have occurred in terms of value. Interestingly a relatively large proportion of in this particular space since the beginning of 2004. On the inbound transactions were joint ventures (five deals worth a buy-side, the only deal to come to the market was announced total of €72m), with three of them stemming from European in the second quarter of 2008 and saw Troika Capital Partners’ acquirers. acquire a 37.8% stake in KamAZ Capital, the Russian investment fund and 33% owner of KAMAZ Incorporated, the Automotive volume split by deal size: 2004-2009 Russian heavy duty vehicle manufacturer, for an undisclosed consideration. Troika Capital already owned a 16.6% stake in KAMAZ, meaning that, post-deal, the private equity group had 4% Not disclosed 4% <€15m a 50.3% controlling stake.

8% €15m-€100m Elsewhere, the only exit saw the private equity arm of the €101m-€250m 38% €251m-€500m European Bank of Reconstruction and Development (EBRD) >€500m sell out of its 75% holding in Intercos-IV ZAO, the company engaged in the design and manufacture of dyes and moulds for the Automotive industry, for an undisclosed sum. The Magnitogorsk Iron and Steel Works was the buyer in this

38% particular transaction.

8%

Top 5 Automotive Deals over 2004-2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Feb-08 C AvtoVaz OAO (25% Automotive Russia Renault SA France Russian Russia 768 stake) Technologies State Corporation 2 Feb-07 C Newdeal Automotive Russia Vadim Shvetsov Russia 348 Investments Ltd (private investor) (85% stake) 3 Dec-08 C KAMAZ Automotive Russia Daimler AG Germany Troika Dialog Russia 187 Incorporated (10% Group stake) 4 Nov-07 C Stadco Limited Automotive Russia Gestamp United 104 /Gestamp Automocioen S L; Kingdom Automacion (St Stadco Ltd Petersburg joint venture) 5 Mar-08 C CJSC Moscow Tyre Automotive Russia Midland Resources United Amtel - Russia 49 Plant-M Holding Ltd Kingdom Vredestein OJSC C = Completed; P = Pending 17 Deal Drivers Russia - Industries Energy

Energy deal making has, over the past six years, played an important role in shaping overall M&A activity in Russia. Indeed, the sector has witnessed 240 transactions worth €101bn over this time frame, accounting for around 15% of total volume and a more significant 45% of valuations.

However, in 2009 the sectors’ share of the overall M&A announced, a decline of some 66% in terms of deal volumes pie fell to 12.2%, highlighting the increasing scarcity of and 81% by value compared to the market’s peak two years Russian Energy assets being sold. This dearth of suitable prior. Quarterly M&A performance in Russia’s Energy industry targets can also be seen when looking at the relative value over 2009 perhaps also points to the further direction of the of Energy assets. In 2008, Russian Energy businesses sold market in 2010 – over the second half of the year, 13 deals for a cumulative €12.3bn, comprising just over one-third of all worth just €758m were undertaken, the lowest amount Russian sales that year. Over 2009, this percentage jumped to invested over a half-yearly period since H1 2004. 44%, giving a strong indication that Energy sector valuations Private equity firms were, for the most part, uninterested in have remained robust. Some 38% of Russian Energy this particular space, with just four buyouts worth €813m transactions with a disclosed value in 2009 were valued at taking place over the past six years. The most notable of over €250m – 10% higher than seen in 2008. In contrast, just these saw a consortium consisting of the Urals Energy Public over one-in-ten Russian M&A transactions across all sectors Company and Ashmore Investment Management, the UK were worth more than €250m last year. private equity and fund management firm, acquire a combined Energy M&A trends in Russia 45.8% stake in OOO Taas-Yuriakh Neftegazodobycha (Taas), the oil exploration and production company, for €515m. The

25 20,000 deal ultimately soured, at least for Urals Energy, who, in late 2009, sold its 35.3% interest in Taas to Sberbank in return for 18,000 a full discharge of the outstanding portion of the debt which 20 16,000 Ural Energy utilised in order to initially acquire Taas. 14,000

15 12,000 Domestic Energy M&A purchases over the past six years numbered 164 transactions worth €69.1bn, accounting for 10,000

olume of deals 68% of all Russian Energy transactions in terms of both V 10 8,000 alue of deals ( € m) V volume and value. Of the remainder, the bulk of inbound 6,000 activity stemmed from the US, with American companies 5 4,000 making 13 acquisitions over the period. However, in terms of 2,000 value, Chinese businesses have been the most acquisitive, 0 0 spending a total of 7.1bn on Russian Energy assets over Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 € 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 the same period. Volume Value Notably, the largest Russian Energy transaction to take place However, the rising importance of Energy M&A activity over the course of 2009 was a purely domestic transaction compared to the country’s wider M&A market should not which saw Gazprom exercise its option to purchase a 20% disguise the fact that, in absolute terms, Energy sector deals stake in JSC Gazprom Neft, the Russian oil producer, for have fallen of late. At the height of the global M&A boom in €3.1bn from Eni, the Italian oil and gas company. Gazprom 2007, acquisitions of Russian Energy companies numbered took the option to acquire the stake back in 2007 when some 59 transactions, worth €39.6bn. This fell to 46 deals Gazprom Neft was auctioned following the break-up of its worth €12.3bn in 2008 and continued to plummet in 2009. parent company Yukos. Eni was reportedly able to net a 6.4% Over the course of the year, just 20 deals, worth €7.7bn, were profit on the sale, having initially purchased the stake for US$3.85bn.

18 Deal Drivers Russia - Industries

Meanwhile, the most significant inbound M&A transaction Energy volume split by deal size: 2009 saw Volga Resources, the Luxembourg-based holding company with interests in oil and gas exploration, acquire a Not disclosed

13.13% stake in OAO Novatek, the oil and gas exploration and 15% < 15m 20% € distribution company, for €1.1bn in May 2009. The deal also €15m-€100m resulted in OAO Novatek acquiring a 51% interest in Yamal- €101m-€250m €251m-€500m

LNG, the Russian operator of the Yuzhno-Tambeiskoye gas >€500m field, from Volga Resources for a reported€ 465m. 15% 5%

5%

40%

TOP 5 ENERGY M&A DEALS: 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Apr-09 C JSC Gazprom Neft Energy Russia OAO Gazprom Russia ENI SpA Italy 3,089 consumer flyer 4 page (20% stake)

2 Mar-09 C Bashkir Oil and Energy Russia AFK Sistema Russia Agidel-Invest Russia 1,894 Energy Group LLC; Inzer-Invest LLC; Ural-Invest LLC; Yuryuzan- Invest LLC 3 May-09 P OAO Novatek Energy Russia Volga Resources Luxembourg Cartagena Russia 1,125 (13.13% stake) SICAV SIF SA Development Inc 4 May-09 C OAO Yamal LNG Energy Russia OAO Novatek Russia Volga Resources Luxembourg 465 (51% stake) SICAV SIF SA 5 May-09 C TNK BP Energy Russia Weatherford USA Novy Russia 346 International Ltd International Ltd Investments Ltd (Oil Field Services enterprises) C = Completed; P = Pending

19 Deal Drivers Russia - Industries Financial Services

The number of buyers interested in Russian Financial Services assets waned over the course of 2009. This development can largely be attributed to the fact that the country’s financial system came close to collapse in the days and months following the demise of Lehman Brothers. Indeed, the steep decline in Financial Services-related M&A transactions in Russia over 2009 was not wholly unforeseen, although the scale and scope of decline was arguably more severe than market practitioners expected.

Over the course of 2009, just 21 Financial Services deals situation remains uncertain, further constraining the acquisitive worth €988m came to market, nearly half the number of deals aspirations of many Russian Financial Services firms. completed the previous year and just over 10% of 2008 deal Meanwhile, inbound acquisitions of Russian banking assets values. However, this figure may have been skewed by the is likely to rise slowly over the next 12 months. According to high number of undisclosed transactions with only around one- one Western European M&A practitioner, the Russian banking third of deals having a disclosed value, the bulk of which were market remains attractive to western players due to its in the €100-250m bracket. immense macro and micro growth potential. Others, however, Looking forward, however, deal prospects for Russian are more reserved, suggesting that foreign bidders are too banks and other financial institutions are looking up, with an preoccupied with issues at home to consider cross-border expected bout of consolidation expected to slim down the acquisitions. At the same time, concerns with the sturdiness country’s distended Financial Services industry to around of Russia’s legal framework continue to be aired, despite the half its current size. Indeed, such a move is actively being country’s judiciary having worked hard to improve working practices of late. Financial Services M&A trends in Russia Nonetheless, while Financial Services-focused M&A practitioners in Russia might now be complaining about the 16 6,000 lack of deal heat, the same could not be said in 2008. Over

14 the course of the year, 37 acquisitions worth a total of €7.9bn 5,000 came to market, meaning that the sector accounted for 13.5% 12 of total Russian M&A transactions by volume and more than 4,000 10 one-fifth of overall valuations. Deal flow was led by Interros Company’s acquisition of a 50% stake in KM Invest, the 8 3,000

olume of deals Russian investment fund, for €4.6bn in April 2008. V alue of deals ( € m) 6 V 2,000

4

1,000 2

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value

driven by a government initiative which is looking to raise the minimum shareholder equity within local banks to US$35m within five years, a more-than-tenfold increase on the current figure. Nonetheless, Russian banks continue to remain reticent on undertaking M&A for a number of reasons. Firstly, local institutions continue to be primarily focusing on cleaning up their own books as opposed to M&A. Secondly, many firms lack liquidity for purchases while the wider macroeconomic

20 Deal Drivers Russia - Industries

Financial Services M&A split by deal size: 2009 Since the beginning of 2004, private equity activity has accounted for around 10% of all Russian Financial Services M&A deals by volume, although this percentage fell to just Not disclosed 5% over 2009. In fact, the only financial investment to be <€15m 24% €15m-€100m made last year was the MBO conducted by the management €101m-€250m of Rosbank, the Russian fund management company, for an undisclosed sum.

Since the beginning of 2004, 110 Russian Financial Services 5% transactions, worth a total of €9.5bn, have been purely 5% domestic plays; the most notable example being the above 66% mentioned tie-up between Interros and KM Invest. Cross-border acquirers were responsible for just 29% of deals in the sector over 2009, indicating that foreign investors continue to view deal making in Russia as high risk. Furthermore, activity was also hindered by the fact that many overseas institutions remained preoccupied with re-capitalising their own balance sheets and reducing their exposure to toxic assets.

TOP 5 FINANCIAL SERVICES M&A DEALS: 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Oct-09 C OSAO Rossija Financial Russia Viktor Pinchuk Ukraine OAO UK Russia 241 Services (private investor) Trastkom

2 Mar-09 C Troika Dialog Group Financial Russia Standard Bank South Africa 237 (33% stake) Services Group Ltd 3 Feb-09 C Bank VEFK Financial Russia Deposit Insurance Russia 218 (undisclosed stake) Services Agency; NOMOS Bank; OTKRITIE Financial Corporation 4 Mar-09 C OTKRITIE Financial Financial Russia VTB Bank JSC Russia 111 Corporation Services (19.99% stake) 5 Nov-09 P Promsvyazbank Financial Russia European Bank for United 107 JSCB (11.75% Services Reconstruction and Kingdom stake) Development C = Completed; P = Pending

21 Deal Drivers Russia - Industries Consumer & Retail

Russian M&A activity in the Consumer & Retail space dwindled over 2009, with just 31 transactions, worth a total of €791bn taking place over the course of the year. This contrasts with the 52 deals, worth €6bn, which came to market in 2008, representing the peak of this particular market in terms of annual valuations.

Over the past six years, the Russian Consumer M&A market However, the uncertain macroeconomic outlook could also act has seen significant peaks and troughs. In 2004, 29 deals as a spur for Consumer M&A activity with many businesses worth €796m were undertaken, largely mirroring deal flow finding themselves in stressed situations and likely to be in 2009. Conversely, the boom years of 2007 and 2008 saw forced to come to the market in 2010. One such company significant M&A activity -- more than double 2009 volumes and could be Avtomir, the privately-owned Russian car dealer, nearly ten times the year’s deal valuations. which has been approached with offers from investment funds to sell a stake. At the same time, the owner of the Russian The relative dearth of Consumer sector transactions in Russia jewellery business, Moscow Jewellery Plant, is reportedly over 2009 is most likely attributable to the low likelihood of looking to sell up, primarily in order to raise capital to repay a wider economic recovery in the foreseeable future. Year- previously-accrued loans. on-year GDP figures are expected to show that the economy contracted over 2009, a belief that was reinforced by recent Over 2009, not one M&A deal in the space was worth more data which indicates that Russia’s Manufacturing PMI index than €250m. In fact, the largest acquisition to be announced over the year was the €183m acquisition of supermarket Consumer M&A trends in Russia Paterson by the X5 Retail Group. In contrast, the largest deal in 2008 was valued at €1.3bn and saw PepsiCo and The Pepsi Bottling Group jointly acquire a 76% stake in Russia’s leading 30 3,000 branded juice company JSC Lebedyansky.

25 2,500 While local strategic players stayed away from conducting acquisitions in Russia’s Consumer sector last year, private 20 2,000 equity firms remained relatively active, no doubt looking to indulge in some opportunistic bottom-fishing, spurred on by 15 1,500 cheap valuations. Financial investors accounted for 186m

olume of deals € V alue of deals ( € m) V 10 1,000 worth of transactions in 2009 -- itself not a particularly large figure although still 24% of overall Consumer valuations in

5 500 Russia over the year.

The two 2009 private equity transactions in question saw Lion 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Capital, the UK private equity firm, sell a 12% stake in the 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value Russian Alcohol Group to the Central European Distribution Corporation, the Polish importer and distributors of beers, fell 0.5 percentage points to 49.1 in November 2009. Any wines and spirits, for €109m. A few months later, TPG, the figure less than 50 signals a contraction in the number of new US private equity firm, along with a local investor, acquired a industrial orders. At the same time, the Services PMI index 35.4% stake in hypermarket OO Lenta. also fell one percentage point in November to 53.5, well below the long-run historical average of 56.9.

22 Deal Drivers Russia - Industries

Foreign firms also struck a number of deals, accounting for Consumer volume split by deal size: 2009 close to half (45%) of overall activity in the Consumer sector, interestingly, this figure falls to 33% when looking at deal Not disclosed 10% flow over the past six years. The relative rise in importance of <€15m inbound deal flows over 2009 mainly stemmed from European €15m-€100m players, with German, Dutch, Italian, Swedish and Polish €101m-€250m businesses emerging as key players in this regard. Indeed, the 48% largest inbound M&A purchase of a Russian Consumer asset 32% over the year was the aforementioned acquisition of a 12% stake in the Russian Alcohol Group.

10% TOP 5 CONSUMER & RETAIL DEALS IN 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Nov-09 P Paterson Consumer & Russia X5 Retail Group NV Russia CorpInvest Inc Russia 183 Retail

2 Dec-09 C Sibirsky Bereg Consumer & Russia Konditerskiy Dom Russia Maybond Ltd Russia 135 Retail Vostok 3 Apr-09 C Russian Alcohol Consumer & Russia Central European Poland Lion Capital LLP United 109 Group (12% stake) Retail Distribution Kingdom Corporation 4 Sep-09 C OOO Lenta (35.4% Consumer & Russia JSC VTB Capital; USA Oleg Zherebtsov Russia 77 stake) Retail TPG Capital LP (Private Investor) 5 Jun-09 C Concordia (60% Consumer & Russia Miratorg Russia Sadia SA Brazil 56 stake) Retail Agribusiness Holding C = Completed; P = Pending

23 Deal Drivers Russia - Industries Industrial Markets

M&A activity in the Russian Industrial space tailed off over 2009 with just 18 deals worth €10m being announced over the course of the year. This marks a substantial drop from activity levels seen in the M&A boom years of 2006 and 2007 when a total of 93 deals worth €109bn were announced.

Nonetheless, while annual deal flows over 2009 have certainly and alumina assets of Siberian Urals Aluminium (SUAL) and fallen compared to the preceding boom years, M&A volumes Switzerland-based Glencore International for €6.8bn. As a were broadly comparable to 2008 with year-on-year activity result of the transaction, RusAl owned 66% of the new entity, increasing by a modest 13%. It was, however, perhaps named United Company RusAl, with 22% owned by SUAL and unsurprising that 2009 deal sizes were exclusively focused 12% by Glencore. in the lower mid-market (<€100m) space, although this The second-largest deal to have taken place in the Russian figure could have been skewed by the fact that just 22% of Industrial Markets space was a Chemicals and Materials deal transactions had a disclosed valuation. Deal sizes over the which saw Neft Aktiv, the Russian company a subsidiary of past six years were slightly more diffuse with 14% of overall OAO Rosneft Oil, win an auction to acquire assets of the now- activity in the sector worth >€100. defunct Russian oil giant Yukos, which went into receivership in 2004. Neft Aktiv ultimately acquired stakes in 28 enterprises Industrial Markets M&A trends in Russia including 100% in OJSC Samaraneftegaz, the Russian oil and gas producer; the Kuibyshev Refinery; the Novokuibyshev

18 9,000 Refinery; the Syzran Refinery; the Novokuibyshev Oils and Additives Plant; the Samaranefteprodukt, Samara Terminal; a 16 8,000 98.1% stake in the Neftegorsk Gas Processing Plant and the 14 7,000 Otradnoye Gas Processing Plant; as well as various stakes in 12 6,000 a group of companies involved in gas refining and oil product

10 5,000 marketing in Russia. Interestingly, Neft Aktiv had – just two

8 4,000 months prior to winning the auction – already acquired another olume of deals V alue of deals ( € m) V batch of Yukos assets for €5bn. 6 3,000

4 2,000 While large-cap corporate M&A plays have traditionally dominated the headlines, it is also noteworthy that private 2 1,000 equity houses have been busy brokering deals in the sector’s 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 mid-market. Indeed, financial investors have undertaken 20 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value deals over the course of the past six years, worth a total of €359m, 16 of these being buyouts. As a result, financial investors accounted for a not insignificant 10.2% volume share The bulk of deal flow over the past six years was focused in of overall Industrial Markets activity, although private equity the Industrials products and services niche, which witnessed valuations comprised just 1.5% of total deal making. some 111 transactions worth €16.2bn, accounting for 57% of all Industrial Markets deals conducted over the past six years by volume and 69% in terms of valuations. Indeed, the largest deal of the past six years was announced in this space with Oleg Deropaska-owned Rusal acquiring the aluminium

24 Deal Drivers Russia - Industries

Industrial Markets volume split by deal size: 2004-2009

4% Not disclosed 3% <€15m 8% €15m-€100m

€101m-€250m

€251m-€500m

>€500m 45%

25%

15%

Top 5 Industrial Markets deals over 2004-2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Oct-06 C Glencore Industrial Russia United Company Russia Glencore Switzerland 6,750 International products and RUSAL International AG (aluminium services AG; Siberian and alumina Urals Aluminium assets); Siberian (SUAL) Urals Aluminium (aluminium and alumina assets) 2 May-07 C NK Yukos OAO (Lot Chemicals Russia Neft Aktiv Russia NK Yukos OAO Russia 4,730 11 comprising of 28 and materials enterprises) 3 Jun-06 C Evraz Group SA Industrial Russia Millhouse LLC Russia Crosland Global Cyprus 2,476 (41.3% stake) products and Ltd services 4 Oct-06 C Trubnaya Industrial Russia TMK Steel Cyprus Dalecon Ltd Russia 1,039 Metallurgiczeskaya products and Kompaniya (33% services stake) 5 Dec-04 C Magnitogorsk Iron Industrial Russia U.F.G.I.S. Trading Cyprus Mechel OAO Russia 650 and Steel Works products and Ltd OJSC (17% stake) services C = Completed; P = Pending

25 Deal Drivers Russia - Industries Life Sciences

M&A deals conducted in the Life Sciences sector in Russia have been few and far between over the past six years. However, the future is looking brighter. Changes to the legislative framework governing pharmaceutical product pricings and the projected rapid expansion of the country’s generic medicine market in 2010 is likely to drive significant M&A activity going forward.

However, since the beginning of 2004, a mere 17 Life The largest deal to take place in the sector saw the German Sciences transactions, worth a total of €727m, have come drug manufacturer Stada Arzneimittel, under its Nizhpharm to market in Russia. The bulk of them were announced in JSC firm, acquire ZAO Makiz Pharma, ZAO Skopinpharm 2005 and 2006, when nine purchases, worth €264m, were and ZAO Biodyne Pharmaceuticals, its Russian counterparts, conducted. The acute onset of the global financial crisis in from the Makiz Group for a total consideration of €125m. The September 2008 completely stalled Life Sciences activity deal strengthened Stada Arzneimittel’s presence in Russia, with transactions only returning to the market in the fourth with the German firm having already undertaken a previous quarter of 2009. The deal in question saw Sanofi-Aventis, €81m 97.5% stake acquisition of Nizhpharm OAO, the the French pharmaceutical company, acquire a 74% stake in Russian pharmaceutical company, from the European Bank of Bioton Wostok, the insulin manufacturer for €28m. Bioton, the Reconstruction and Development (EBRD) in 2004. Polish Biotech firm, initiated the sale in a bid to reduce its debt Significantly, the EBRD played an important role in driving burden, which will ultimately allow it to significantly reduce its private equity activity in Russian Life Sciences – which, in debt by around €25m in 2009. total, comprised three exits worth some €130m over the past Life Sciences M&A trends in Russia six years. EBRD divested its investment in pharmaceutical distributor ZAO Katren, made through a Berkeley Capital

3 180 Partners fund, in September 2005. The management of the business were the buyers in this case, spending some 8m 160 € acquiring a 31.4% stake in the company. The last sale saw 140 US buyout house The Carlyle Group sell out of a 96% stake 2 120 in pharmaceutical wholesaler AP Apteka for €41m to the UK-

100 based firm Alliance Boots.

80 olume of deals

V In fact, foreign players have always had a strong presence in alue of deals ( € m) V 1 60 the Russian Life Sciences M&A market, having accounted for

40 close to half (47%) of all such transactions over the past six years, as well as 62% of total valuations. However, overseas 20 interest in Russian assets has rarely extended beyond 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 European bidders with only one transaction stemming from a 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value buyer located outside the region. The acquisition in question saw PPD, the US-based service provider for pharmaceutical and biotechnology firms, acquire Innopharm, the Russian At €28m, the deal valuation typified the vast majority of contract research organisation for an undisclosed sum. Life Sciences M&A transactions conducted in Russia over the wider period. Indeed, the mid to low-end of the market While Life Sciences deal flow in Russia has seen a small but dominated with 70% of deals with an announced value worth steady number of transactions come to market in recent years, less than €100m. Moreover, not a single transaction worth a raft of new government regulations is set to substantially more than €125m has come to the market in recent years. alter the market in 2010 and beyond. Firstly, the government is

26 Deal Drivers Russia - Industries

planning to introduce new price controls on all life-saving and Life Sciences volume split by deal size: 2004-2009 essential medicines in 2010, ultimately resulting in the prices of all such medical products being set by the government. At Not disclosed the same time, the Federal Antimonopoly Service recently 12% 18% <€15m issued an order compelling 10 foreign pharmaceutical €15m-€100m manufacturers to join a register of businesses that have €101m-€250m dominant positions in the Russian pharmaceutical market.

The businesses include Johnson & Johnson, Roche-Moscow, 12% Novartis Pharma, Nycomed Distribution Center and Schering. Going forward, if these companies are found to be abusing their positions, the regulator will be able to impose penalties, or, in severe cases, reject future M&A acquisitions by these companies within their respective Russian markets. 58%

Top 5 Life Sciences deals over 2004-2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Aug-07 C Skopinpharm ZAO; Life Sciences Russia Nizhpharm JSC Germany 125 ZAO Biodyne Pharmaceuticals; ZAO Makiz Pharma 2 Oct-06 C Masterlek Life Sciences Russia Pharmstandart Russia 116 Group 3 Mar-08 C Moron Ltd (75.00% Life Sciences Russia Oriola-KD Finland 85 stake); Vitim & Co Corporation (75.00% stake) 4 Dec-04 C Nizhpharm JSC Life Sciences Russia STADA Arzneimittel Germany European United 81 (97.50% stake) AG Bank for Kingdom Reconstruction and Development 5 May-08 C European Medical Life Sciences Russia Goldencorp Russia Pharmacy Chain Russia 71 Center (EMC) Enterprises Ltd (BVI) 36.6, OAO C = Completed; P = Pending

27 Deal Drivers Russia - Industries Mining

Before the collapse of Lehman Brothers in the third quarter of 2008, Mining M&A in Russia had been booming. Indeed, between Q3 2007 and Q2 2008, 24 such transactions, worth €12.9bn were conducted, more than 50% of total M&A valuations seen in the sector since the beginning of 2004. In comparison, Mining M&A deal flow in Russia over the second half of 2008 and 2009 has been subdued with a total of 11 deals worth just €1.6bn coming to the market.

Looking at the wider period, the largest deal was announced RusAl’s performance following the acquisition has had a large in November 2007 and saw Russian Aluminium’s (RusAl) impact on M&A activity in the sector. As the credit crisis hit acquire a 25% plus-one-share stake in MMC Norilsk Nickel, harder in mid-2008, Norilsk Nickel lost around four-fifths of the Russian metals and mining company, for €8.5bn from its value, ultimately resulting in RusAl having to undergo a the Onexim Group, the Russian private investment fund. painful round of restructuring in the first half of 2009. Indeed, Intriguingly, RusAl was able to secure debt financing for the the largest Mining transaction of the year came about as a deal to the tune of US$4.5bn or – perhaps more pertinently direct consequence of the restructuring with private investor – 75% of RusAl’s cash payment to the Onexim Group. The Suleiman Kerimov purchasing a 20% stake in OJSC Polyus lending syndicate comprised ABN Amro, BNP Paribas, Credit Gold for €541m from Vladimir Potanin, a counterpart who was Suisse, and Merrill Lynch, highlighting the relative willingness looking to sell out in order to raise capital to buy into RusAl’s of banks to fund large-cap strategic deals pre-financial crisis. debt restructuring.

A relatively large number of unique M&A situations arose over the course of 2009 with the 20% stake buy in OJSC Mining M&A trends in Russia Polyus Gold by Kerimov being just one of them. In what was the sector’s third largest transaction of the year, Kerimov’s 8 12,000 company, JSC Nafta Moskva, went on to buy a further 15% 7 10,000 stake in Polyus Gold for €404m from Potanin less than two

6 months after completing his initial transaction and at a deep

8,000 discount to Polybus Gold’s share price one day prior to the 5 deal announcement. Meanwhile, another Mining transaction, 4 6,000 the €78m acquisition of a 50%-plus-one-share stake in olume of deals V alue of deals ( € m) 3 V Dalpolimetall OAO by the Russian Mining Company, was 4,000 undertaken chiefly because the target was heavily in debt. 2

2,000 1

0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Volume Value

28 Deal Drivers Russia - Industries

Mining volume split by deal size: 2009 Domestic plays have tended to dominate Russian Mining M&A deal trends over the past six years, accounting for 77% of all Mining transactions, worth a significant€ 22.2bn. Of

Not disclosed the remainder, the bulk of inbound transactions by volume 14% 14% <€15m stemmed from UK businesses, who undertook five Mining €15m-€100m acquisitions worth a total of €380m over the period – the €251m-€500m

>€500m largest of these being Aricom’s buy of the remaining 50% 14% stake it did not already own in Rubicon, the Russian mining company, for €215m.

29% From a valuations point perspective, the most active foreign investors were, perhaps surprisingly, Irish firms, or more specifically, Ovaca Resources, the Irish gold & zinc mining

29% company. The company has made two acquisitions in Russia over the past six years, firstly acquiring a 78% stake in Norplat, the Russian exploration company, for €484m in 2005, followed by the €17m acquisition of a 74% stake in CJSC Ayax Prospectors one year later.

Top 5 Mining deals in 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Mar-09 C OJSC Polyus Gold Mining Russia Suleiman Kerimov Russia Vladimir Potanin Russia 541 (20% stake) (Private Investor) (Private investor)

2 Oct-09 C Belon Group OJSC Mining Russia Magnitogorsk Iron Russia Sapwood Cyprus 426 (41.3% stake) and Steel Works Investments Ltd OJSC 3 Apr-09 C OJSC Polyus Gold Mining Russia JSC Nafta-Moskva Russia Interros Russia 404 (15% stake) Company 4 Feb-09 C Dalpolimetall OAO Mining Russia Russian Mining Russia 78 (50% stake) Company (RGRK) 5 Sep-09 C Ozernoe project Mining Russia MBC Resources Ltd Russia Lundin Mining Canada 24 (49% stake) AB C = Completed; P = Pending

29 Deal Drivers Russia - Industries Technology, Media & Telecommunications

While the number of Russian Technology, Media & Telecommunications (TMT) acquisitions fell over the course of 2009, valuations remained remarkably resilient with a total of 25 transactions worth €3.4bn coming to the market. Given the tough deal making conditions, these figures stand up well to the 40 deals worth €1.5bn that were announced in 2008.

2009 annual deal activity was dominated by a duo of €1bn+ deal was agreed at a 23.3% premium to Comstar’s share price deals. The larger of the two was the €1.5bn acquisition of one day prior to the deal announcement, a rarity given that the a 40% stake in telecommunications company Rostelecom vast majority of public takeovers conducted in Russia in 2009 by the Deposit Insurance Agency (ASV), a state-owned were undertaken at large discounts to the target’s share price corporation, and Vnesheconombank (VEB), the Russian one day prior – likely due to the stressed nature of such sales banking service provider, from beleaguered local bank KIT and, also, the significant rally seen in equity markets over the Finance in June 2009. The financial institution came close second half of the year. to meltdown following the collapse of Lehman Brothers in Acquisitions of Russian telecommunications carriers and September 2008, with its assets shrinking 72% in value to media businesses have accounted for the bulk of TMT deals US$1.4bn in the subsequent market turmoil. As a result, since the beginning of 2004, representing more than a 75% ASV, along with RZD, the Russian railroad operator and share of overall deal volumes and valuations in the sector. The largest single stakeholder in KIT Finance, restructured the largest telecommunications carrier M&A deal, as well as the business, with ASV investing a total of US$3.58bn in order to largest Russian TMT M&A transaction to be conducted since turn the bank around and shrink its assets by around a third. the beginning of 2004, was the €3bn acquisition of Golden The restructuring was evidently successful, with the bank Telecom by Vimpel-Communications (VimpelCom), the Russian reportedly returning to profitability in Q3 2009. mobile phone operator in late 2007.

TMT M&A trends in Russia While the VimpelCom/Golden Telecom transaction was a purely domestic play, foreign investors have also shown 25 3,500 interest in the sector, with US businesses being the most

3,000 active foreign acquirers, having completed such 10 deals 20 worth €834m over the past six years. The largest of these 2,500 transactions was the 2004 €529m acquisition of a 25% 15 2,000 stake in OAO Svyazinvest, the telecommunications holding company, by Access Industries, the investment vehicle of

olume of deals 1,500 V 10 alue of deals ( € m)

V Len Blavatnik in 2004. The target was brought to market by

1,000 Mustcom, one of George Soros’s investment funds, due to

5 its poor performance – Svyazinvest lost considerable market 500 share under its ownership with Mustcom having initially paid US$1.8bn for the stake in 1997. 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 Private equity has also been active in the Russian TMT Volume Value market over the past six years, accounting for a total of A further notable TMT transaction in 2009 was the public €2.7bn in 40 separate transactions – equivalent to 18% of takeover of a 50.91% stake in OAO Comstar UTS, the all M&A transactions in the TMT sector and some 17% of telecommunications operator, by Mobile TeleSystems OJSC, deal valuations. These percentages are generally higher than the listed mobile phone operator, for €1.4bn in August. The private equity investment trends over the whole Russian M&A

30 Deal Drivers Russia - Industries

market, which, over the same period, accounted for just 7% TMT volume split by deal size: 2009 of all deal volumes and 3.2% of total valuations.

Not disclosed And while private equity interest, perhaps understandably, 8% <€15m faded in 2009, three buyouts worth €90m were completed 4% €15m-€100m despite the very testing deal making climate. Activity was €101m-€250m 36% led by the €69m acquisition of a 9% stake in Yandex, the >€500m search engine company, by a consortium of private equity firms including Baring Vostok Capital Partners, UFG Asset 32% Management and Tiger Global Management.

20%

Top 5 TMT deals in 2009 Ranking Announced Status Target company Target Target Bidder company Bidder country Seller company Seller Deal date sector country country value (€m) 1 Jun-09 C OAO Rostelecom TMT Russia Deposit Insurance Russia KIT Finance Russia 1,513 (40% stake) Agency; Vnesheconombank 2 Aug-09 C OAO Comstar TMT Russia Mobile TeleSystems Russia AFK Sistema Russia 1,412 United TeleSystems OJSC (50.91% stake) 3 Oct-09 P JSC Sitronics / TMT Russia Russian Corporation Russia Sitronics JSC Russia 149 Rusnano (Joint of Nanotechnologies Venture) (49.9% stake) 4 Dec-09 C Eurotel Russia TMT Russia Mobile TeleSystems Russia Effortel Russia Russia 77 OJSC Group 5 Sep-09 C Yandex (9% stake) TMT Russia Baring Vostok USA Oradell Capital Russia 69 Capital Partners (BVCP); Tiger Global Management LLC; UFG Asset Management C = Completed; P = Pending

31 Deal Drivers Russia - Survey Analysis 03 Survey Analysis

32 Deal Drivers Russia - Survey Analysis Methodology

In December 2009, Remark, the publishing division of mergermarket, interviewed 100 Russian M&A and corporate finance decision-makers in order to garner their views on various aspects of the present Russian M&A environment. Their opinions were all reported confidentially and in aggregate.

Close to nine-in-ten respondents are bullish Business operations are likely to be on Russia’s economic prospects for 2010 constrained by a lack of liquidity and weak domestic demand

How positive do you feel about the prospects of the Rate the following in terms of the threat they pose to Russian economy in 2010 compared to 2009? the growth prospects of Russian firms over the next 12 months:

6% Positive Tight credit conditions/ 3% 32% 30% 26% 8% 5% Undecided lack of liquidity Negative Weak domestic 8% Very positive 19% 31% 36% 11% 3% demand

Commodity 3% prices 12% 23% 50% 12%

Political 9% 17% 59% 10% 4% issues

Currency 8% appreciation 7% 21% 51% 13%

0102030405060708090 100 81% Percentage of respondents

Greatest threat Major threat Threat Minor threat No threat

• Deal makers in Russia are overwhelmingly optimistic • Tight credit conditions and the lack of liquidity in the about the future of Russian M&A with 81% of those market are viewed as the biggest threats to the growth surveyed feeling positive about the prospects of the prospects of Russian firms over the next 12 months. Russian economy in 2010 compared to 2009. An additional 32% of respondents view it as the greatest threat while 6% even claim to feel very positive about Russia’s M&A 30% see it as a major issue. Meanwhile, it should be prospects. Reinforcing this sentiment, one respondent acknowledged that while a rising rouble poses the least said “The worst is already over and we are expecting good concern to respondents, more than one quarter still financial climate in next year” while another said “the believe that currency appreciations are a major threat. This economic situation is improving and is now showing some echoes comments made by deal makers in the Ukraine at positive results”. a previous event, who said that currency fluctuations have hindered deal flow over the past year and will continue to do so well into 2010.

33 Deal Drivers Russia - Survey Analysis

Russian M&A prospects in 2010 remain open Takeover activity in the TMT sector is most to debate with just over 60% of respondents likely to dominate overall Russian M&A, suggesting that activity will rise according to respondents

What do you expect to happen to the overall level of Which sector do you believe will witness the most M&A activity in Russia over the next 12 months? M&A activity in Russia over the next 12 months?

1%

Increase 49% 3% TMT Remain the same Energy, Mining 41% Decrease & Utilities Increase greatly Financial Services 30%

Consumer 24% 38% Pharma, Medical 22% & Biotech 58% Industrials & 14% Chemicals

Transportation 10%

Construction 8%

0510 15 20 25 30 35 40 45 50

Percentage of respondents

• Nevertheless, despite the ongoing economic downturn, • A sizable 48% of respondents expect the TMT sector the majority of deal makers are expecting to encounter to witness the most M&A activity in Russia over the increased level of deal flow over the next 12 months. 58% next 12 months – in stark contrast, a mere 8% felt the of those surveyed by mergermarket say that they expect Construction sector would be the hottest sector. The fate the overall level of M&A activity in Russia to increase over of the Financial Services sector has also undergone a the next 12 months, with a further 3% even thinking it noticeable change – when asked the same question last will increase greatly. One respondent explained that “to year, an overwhelming 80% of respondents felt that this survive in the current market, big companies are acquiring sector would see the bulk of deal flow. This time around, smaller counterparts” while a further two pointed out this only 30% continue to support this assertion – probably could go either way with deal flow also resulting from explained by the fact that as the financial crisis lessens, smaller companies being unable to deal with the current so do the opportunities the sector offers to investors. economic situation and becoming targets for bigger, cash- rich and acquisitive players.

34 Deal Drivers Russia - Survey Analysis

69% of respondents consider that the bulk of Russian M&A is most likely to be driven by Russian M&A transactions will be worth less non-core asset disposals according to 47% than €250m over the next year of respondents

Which deal size range do you expect to witness the What do you believe will drive M&A activity in most M&A activity in Russia over the next 12 months? Russia over 2010?

Non-core asset 4% <€15m disposals by larger 47% 12% corporates €15m-€100m

€101m-€250m 19% Government 25% €251m-€500m initiatives

>€500m

19% Distressed 25% driven M&A

Undervalued 22% targets

Private equity 21% divestments

Cash rich corporate 12% acquirers 46%

0510 15 20 25 30 35 40 45 50

Percentage of respondents

• The majority of respondents to the survey expects the • Russian M&A activity over the course of 2010 is most bulk of deal activity to take place in the mid-range with likely to be driven by large corporates disposing of non- valuations between €101m to €250m. This is a slight shift core assets according to nearly half of respondents. Deal from last year when the majority of respondents expected makers across Europe have commented that the financial the bulk of deals to be worth €100m or less. crisis has forced many larger companies to revaluate business strategies going forward resulting in an increased focus on key operations and thus a rise in the number of non-core asset disposals. “To survive, big corporates need to dispose of their non core and non-performing business assets,” one respondent said, while another commented that “to meet the expenses of their core operations, larger players will need to make non-core disposals.” It should, however, also be pointed out that government initiatives and distressed driven M&A situations are expected to play a key role in driving M&A going into 2010.

35 Deal Drivers Russia - Survey Analysis

More than half of respondents think Cross-border M&A activity is set to that financing difficulties and the wider increase according to over three-quarters economic climate will constrain deal flow of respondents over the next year What do you believe will be the principal obstacles Do you anticipate an increasing number of cross- to M&A activity in Russia over the next 12 months? border acquirers to target Russian assets over the next 12 months?

Financing 65% Yes difficulties No 23%

Economic 54% uncertainty

Regulatory 22% issues

Political risks 21%

Vendor/acquirer 14% price dislocation 77%

010203040506070

Percentage of respondents

• Acquisitive Russian businesses’ greatest challenge facing • An overwhelming majority of respondents feel that, over them will be the lack of financing options available say the course of 2010, an increasing number of cross-border 65%. It is also interesting that despite respondents’ acquirers will be targeting Russian assets. Explaining this relative bullishness on Russian economic prospects, phenomena, one respondent said that that those buyers more than half still flagged up economic uncertainty as from outside Russia are looking at the Russian market “to an obstacle to deal flow. One respondent explained that, acquire companies with good growth prospects”; another “Uncertainty in the economic condition is stopping the noted that, “Cross-border acquirers will try to capture the investors from investing money in the market and that is Russian market as it has potential to grow in the future”. It leading to financial difficulties” – an excellent summary of should be noted that two respondents referred specifically the fundamental challenges Russian deal makers will be to initiatives launched by the Russian government to facing over the course of 2010. attract precisely such investors to the Russian market.

36 Deal Drivers Russia - Survey Analysis

Asia-Pacific businesses are likely to be the Respondents remain undecided on whether most acquisitive inbound buyers of Russian cross-border deal making in Russia has assets in 2010 become easier

Where do you believe the majority of cross-border Do you agree that deal making in Russia has become acquirers for Russian assets will originate from over easier for cross-border acquirers in recent years? the next 12 months?

79% Agree Asia-Pacific 18% Unsure Disagree 48% Europe

21% 43% North America

South America 10%

6% Middle East

39% 2% Africa

01020304050607080

Percentage of respondents

• Given the many cash-rich and acquisitive companies • A slight majority of respondents believe that deal making emanating from the Far East – particularly from China, in Russia has become easier for cross-border acquirers India and Japan – it comes as no surprise that close to in recent years – some 43% agree, 39% are uncertain four-out-of-five respondents expect the majority of cross- while 18% disagree. A number of respondents who border acquirers for Russian assets to come from Asia don’t ascribe to this refers to the bureaucratic nature of over the next 12 months. However, buyers from Europe the state, noting that it continues to hinder deal flow for will also continue to scour Russia for suitable targets to cross-border acquirers. At the same time, there are also a buy. Explaining the perceived lack of interest from North number of respondents who actually feel the government and South American buyers towards acquiring in Russia, is helping buyers complete deals in Russia. We can only one respondent explained that the “US has [to first conclude that the perception on how easy or difficult it overcome] the effect of that crisis and the huge difference is for cross-border acquirers to do deals in Russia and in the currency conversion ratio,” presumably before how this process depends almost entirely on individual making any acquisitions in the country. experiences.

37 Deal Drivers Russia - Survey Analysis

Russian buyers of overseas assets are likely More than half of respondents expect domestic to target businesses in the Asia-Pacific region acquirers to snap up overseas TMT assets next year

Which regions do you believe Russian acquirers will Which sectors do you expect the bulk of Russian most aggressively target over the next 12 months? outbound acquirers to target over 2010?

TMT 51% Asia-Pacific 88% Energy, Mining 38% & Utilities Financial Europe 45% 33% Services

Consumer 28% North America 13% Industrials 23%

Business 21% South America 12% Services Pharma, Medical 18% & Biotech

Middle East 5% Transportation 10%

Construction 10% Africa 2% Leisure 2%

0102030405060708090 0102030405060

Percentage of respondents Percentage of respondents

• Interesting, according to 88% of respondents, the Asia- • Overseas TMT targets will attract the most attention from Pacific region will be most heavily targeted by Russian Russian outbound acquirers over 2010 say just over half buyers. Explaining the attraction of the space, one of respondents, while foreign Energy, Mining and Utilities respondent said that the regional “market is still in good assets also remain attractive for Russian buyers. To this condition and has many opportunities”. end, one respondent explained that the sector has been the “least effected by the financial crisis” while another said that “the whole of Russia depends on energy.”

38 Deal Drivers Russia - Survey Analysis

More than three-quarters of those polled Perhaps surprisingly, two-thirds of respondents foresee deal financing to become easier forecast that firms will use debt to finance next year compared to 2009 M&A transactions

How easy or difficult do you expect Russian How would you expect Russian companies to companies to find securing financing for deals in finance M&A activity over 2010 given current 2010 compared to 2009? market conditions?

2% 2%

Much easier Debt 66% 15% Slightly easier Internal sources 46% No change

Slightly harder Private equity 20% Much harder funds/investors

Government 7% stimulus packages

Equity capital markets 7% 49%

Other 4% 32%

Depends on a 4% number of factors

Not sure 3%

010203040506070

Percentage of respondents

• Just under half of respondents expect that Russian • Despite the acknowledged difficulties in obtaining companies will find it slightly easier securing financing financing, a substantial 66% of respondents still believe for deals in 2010 compared to the year prior – in itself no that Russian companies will use debt to fund takeovers mean feat given that the bulk of respondents also consider in 2010. It should, however, also be recognised that 46% that funding a deal will be the greatest challenge to face of respondents mentioned internal resource as a way of acquirers over the coming year. Indeed, one Russian deal paying for acquisitions. At the other end of the scale, just maker commented that while it has become slightly easier 7% of respondents apiece noted that Russian acquisitions to securing funding for deals, the process has also become would be financed by economic stimulus packages or from more and more complex, with this trend expected to equity capital markets. continue.

39 Deal Drivers Russia - Survey Analysis

Deal structures will also probably become The fragile economic climate is considered the more exotic in 2010 say more than two-thirds biggest concern when attempting to secure of respondents deal financing

Do you expect deal structures to become more What do you envisage will be the biggest challenge creative to bridge the current liquidity gap? facing Russian firms looking to finance acquisitions over the next 12 months?

Yes Underlying economic weakness 10% No Company performance

Attitudes of lenders

32% Availability/cost of leverage

40% 23%

68%

26%

• Creating innovative deal structures as a method of • 40% of respondents believe that the wider economy’s overcoming challenging market conditions have frequently underlying weakness will pose the biggest challenge arisen over the course of the year, so it comes as facing Russian firms looking to finance acquisitions over no surprise that 68% of respondents feel that such the next 12 months – a marked shift from similar findings structures will be used to bridge the current liquidity gap. in 2008, when the single largest obstacle facing Russian Deferred earn-out clauses, vendor financing, high levels businesses looking to finance a deal was the cost of of syndication and – in the case of private equity – large leverage. In addition, just over one quarter (26%) expect equity tickets or entirely self-financed deals are frequently that company performance will hinder their ability to given as examples of such creativity. secure financing. Interestingly, only 10% of respondents feel that the cost of financing is now the biggest challenge – perhaps highlighting the sharp shift in Russia’s deal making environment compared to just a year ago.

40 Deal Drivers Russia - Survey Analysis

Restructurings are likely to be driven by 54% of those surveyed indicate that the lenders pressuring businesses to alter capital number of defaults and restructurings will structures remain the same this year compared to 2009

Do you believe Russian firms are under pressure What do you expect to happen to the number of from lenders to alter their capital structure? corporate defaults and restructurings in Russia over 2010 compared to 2009 figures?

Yes 4% Increase No Remain the same 13% Decrease 29% Decrease greatly 38%

62%

54%

• A sizable 62% of respondents believe that Russian • More than half of respondents feel that the potential businesses are under pressure from lenders to alter their number of corporate defaults and restructurings in Russia capital structure. Most of those who believe this is the over 2010 will remain similar to levels seen in 2009. case note that this pressure is chiefly to make companies Last year, however, the majority -- 83% -- expected the repay their bank debts. However, according to one number to increase, perhaps suggesting that while the respondent, who noted that this pressure is not always worst of the credit crisis is over, the Russian economy justified, explained that “there is too much of pressure is not of the woods yet. This belief can be corroborated without any serious reason.” by respondents’ comments, with one noting that the “Russian economy is still under the effect of financial crisis.” Another writes that “bad financial conditions within companies are not expected to improve over the next year, it will take its due course of time.”

41 Deal Drivers Russia - Survey Analysis

Close to three-quarters of respondents believe Respondents are split as to what the frequency that corporate re-financings will ultimately be of distressed acquisitions will be in the the most likely source of distressed situations remainder of 2010

What do you believe will provide the most likely What do you expect to happen to the number of source of distressed situations in Russia over the distressed M&A situations in Russia over the next next 12 months? 12 months?

1% 2%

Increase Re-financings 71% 19% Remain the same Decrease

Decrease greatly 32% Private 31% Increase greatly placements

Corporate 9% restructurings

PE portfolio 11% companies 46%

01020304050607080 Percentage of respondents

• Distressed situations will predominately be driven by re- • Unsurprisingly, given that the bulk of those polled consider financings according to 71% of respondents – a marked that the frequency of corporate restructurings will remain change to last year, when just 36% of respondents the same in 2010, the majority of respondents also think thought this would be the case. However, in their that the number of distressed M&A situations will remain comments, many respondents also noted that the overall the same in Russia over the next 12 months. Nonetheless, financial and economic crisis would play a significant role in a sizable 32% disagree, instead believing that this number driving Russian companies into distress. will increase. One of those respondents rightly points out that pressure on companies to repay loans is increasing, whether or not they actually can, which – if in fact, they cannot – will lead to distressed situations.

42 Deal Drivers Russia - Survey Analysis

Private equity deal making set to rebound Financial investment activity predicted to be in 2010 say 45% of respondents focused in the TMT and Energy, Mining & Utilities spaces

What do you expect to happen to the level of private In which sectors do you expect the bulk of private equity buyouts in Russia over 2010? equity buyouts in Russia to take place over 2010?

2% 3%

Increase greatly TMT 43%

9% Increase Energy, Mining 39% & Utilities Remain the same

Decrease Financial Services 35%

Decrease greatly Business Services 28%

25% 42% Consumer

Industrials 23%

Pharma, Medical 16% & Biotech

Construction 12% 44% Transportation 8%

Leisure 1%

01020304050

Percentage of respondents

• Interestingly, close to half of respondents believe that • Respondents also remained bullish on buyout prospects in private equity activity in Russia would increase in 2010, Russia’s TMT sector, with 43% of those polled considering indicating that the asset class is certainly making a come that private equity firms will undertake TMT purchases back. After all, the vast majority of funds are sitting on over the year. Similarly consistent is the response that large piles of dry powder which need to be invested. This the Energy, Mining & Utilities space will be of interest to sense of confidence can be strengthened by the fact that private equity investors, selected by 39% of respondents. just around one-in-ten respondents consider that financial investments in Russia next year will fall compared to 2009 levels.

43 Deal Drivers Russia - Survey Analysis

Respondents are split on whether foreign or Corporate divestments and public takeovers local private equity firms will dominate the likely to be the most frequent sources of M&A landscape in 2010 private equity acquisitions in Russia next year

Do you expect the majority of private equity activity Where do you expect private equity firms to source in Russia over the next 12 months to be conducted by their acquisition targets in Russia over 2010? local private equity firms or international investors

Local private equity firms Divestments from 32% 21% 33% 13% 1% International investors large corporates

Public company 14% 28% 46% 11% 2% takeovers

49% Private 14% 22% 50% 13% 51% equity exits

Private companies 7% 31% 45% 15% 2%

0102030405060708090 100 Percentage of respondents

Very significant source Significant source Source Insignificant source Very insignificant source

• Respondent expectations as to where the majority of • Private equity funds buying from large corporates will private equity activity in Russia will come from – local offer other private equity funds the biggest investment private equity firms or international investors – are almost opportunities according to just under one-third of evenly split. 51% believe financial investments to mainly respondents, while secondary buyouts and public come from local private equity houses while 49% believe takeovers were also considered to be significant sources it will come from international players in the asset class. of M&A deals in 2010.

• However, many respondents stated that the exact way in which private equity funds will source their acquisitions targets in Russia will depend on overall conditions in the different sectors. A number also pointed out that while divestments from large corporates as well as private equity portfolio company sales offer great opportunities, it would fundamentally be easier to buy a privately-owned business.

44 Deal Drivers Russia - Survey Analysis

Private equity firms in Russia will probably Securing deal finance is highlighted by over focus attention on their return on investments 50% of respondents as at least a very serious and due diligence exercises looking forward obstacle facing private equity firms

In what ways has private equity’s investment What are the most serious obstacles that private equity strategy changed since the acute onset of the global firms face when conducting acquisitions in Russia? financial crisis?

Securing finance 40% 33% 22% 32% 13% Focus on ROI for transactions

Unsuitable legal/ 13% 25% 45% 14% 3% 33% regulatory framework More preparation/ due diligence Regional 13% 25% 46% 9% 7% political instability 27% Less deal activity Lack of 9% 22% 48% 17% 4% suitable targets 11% Less risk Competition from 8% 23% 47% 17% 5% trade buyers

7% Resistance to handing No changes over substantial 6% 35% 43% 11% 5% management control 0102030405060708090 100 2% Other Percentage of respondents

Most serious obstacle Very serious obstacle Serious obstacle

010203040 Not an obstacle Not an obstacle at all Percentage of respondents

• Respondents stated that private equity’s investment • Over half of respondents believe that the most serious strategy has changed markedly since the onset of obstacle facing financial investors active in Russia is the the global financial crisis, with 40% suggesting that difficulty in obtaining finance to undertake transactions private equity firms are now more focused on returns – with exactly one-third highlighting this as the most in investment and conducting a thorough due diligence serious issue facing the asset class. However, what stands exercise when looking to transact, than before. out here is that despite an ever-increasing number of cash-rich trade buyers – who themselves reportedly feel emboldened in the face of weakened private equity funds – a mere 8% consider competition from trade buyers to be the most serious obstacle to financial investors’ acquisitions strategy.

45 Deal Drivers Russia - Survey Analysis

IPO activity forecast to remain the same say Russian business prefer listing close to home nearly two-thirds of respondents according to the bulk of respondents

What do you expect to happen to the number of What do you believe is the most attractive listing Russian firms listing over the next 12 months? location for Russian companies?

2% 1%

3% Increase greatly Russia 86% Increase

Remain the same UK 27% Decrease

Decrease greatly 31% USA 9%

China 3%

63% Hong Kong 1%

Switzerland 1%

0102030405060708090

Percentage of respondents

• While there are early signs of a recovery in the global IPO • Those brave enough to attempt to IPO over the coming scene, the majority of respondents (63%) believe that the year will do so in Russia according to the overwhelming number of Russian firms listing over the next 12 months majority of respondents. UK exchanges are by far the most will remain the same. Many caveated this by saying popular out of all the foreign alternatives, with Hong Kong that only companies that have “good potential” or are and Chinese bourses seemingly falling from grace with “established” will take the plunge and seek a listing. Russian businesses looking to list.

46 Deal Drivers Russia - Survey Analysis

Respondents are split over whether vendors The volume of Russian rights issues is to are now considering IPOs as a method of remain the same in 2010 compared to the exiting past investments previous year, according to respondents

Do you believe the recent rally in global equity What do you expect to happen to the volume of markets has meant that both financial investors and rights issues undertaken by Russian corporates over trade players are now seriously considering IPOs as the next 12 months? a way of realising value from portfolio companies/ non-core assets?

Yes 2% 1% 8% Unsure Increase greatly No 6% 10% Increase

Remain the same

Decrease

Decrease greatly

50%

42%

81%

• Exactly half of respondents believe that the recent rally • The vast majority respondents – 81% – believe that in global equity markets has meant that both financial volume of rights issues undertaken by Russian corporates investors and trade players are now seriously considering will remain the same over the next 12 months. According IPOs as a way of realising value from portfolio companies/ to the respondents, these right issues will be driven by non-core assets. However, despite this new-found “M&A financing”, “restructurings of capital structures” optimism, a sizable number of respondents remain and exercises to “repair the balance sheet”. cautious with one saying that they “still need to be vigilant about the deals,” and another adding that “there is still a big chance to lose money.”

47 Contacts

CMS Jean-Francois Marquaire Charles-Henri Roy Managing partner Head of Consumer Products +7 495 786 4084 +7 495 786 3057 [email protected] [email protected] LEADING IN John Hammond Vladislav Sourkov Senior partner Head of Real Estate +7 495 786 4040 +7 495 786 3069 [email protected] [email protected]

David Cranfield Dominique Tissot EUROPEAN M&A Head of Corporate Tax +7 495 786 4030 +7 495 786 3088 [email protected] [email protected] CMS provides practical national and cross-border advice for mergers and acquisitions, corporate finance and privatisation projects. With over 2,400 lawyers in 47 cities across Europe, Maxim Boulba Stanislav Tourbanov we have perfect solutions for all your legal and tax issues; wherever you are. Head of TMT Head of Tax +7 495 786 4023 +7 495 786 3074 Visit our website for more information. [email protected] [email protected]

Irene Engel Yevgeny Voevodin Corporate Competition — 1st in Europe — Germany, Spain, Italy – Advised Telefónica/O2 +7 495 786 4035 +7 495 786 3057 [email protected] [email protected] on the acquisition of German HanseNet from

Ivan Gritsenko Grant Williams — 1st in Eastern Europe Telecom Italia Real Estate Head of Banking and Finance +7 495 786 4044 +7 495 786 3078 [email protected] [email protected] — 1st in France — Austria, CEE – Advised Advent International on

Thomas Heidemann Karen Young the acquisition of the leading Bulgarian bottler of Head of Automotive Banking and Finance — 1st in Germany mineral water, Devin, from the Soravia Group +7 495 786 4049 +7 495 786 3080 [email protected] [email protected] — 1st in UK — Russia – Advised Banque PSA Finance on the Christophe Huet Sergey Yuryev Commercial Dispute Resolution acquisition of AIG's consumer finance operations +7 495 786 4051 +7 495 786 3081 ThomsonReuters European in Russia [email protected] [email protected] Mid-Market M&A 2009 up to USD500m, by deal count Georgy Koval Leonid Zubarev Corporate Head of Insurance and Funds — Russia – Advised VTB Bank on a US$150 million +7 495 786 4068 +7 495 786 4000 investment to acquire 19.90% of Otkritie [email protected] [email protected] Financial Corporation Natalia Kozyrenko Elena Zhigaeva Key contact in Russia: Head of Energy and Natural Resources Corporate John Hammond | Senior partner +7 495 786 4000 +7 495 786 3063 — Russia – Advised Gruner + Jahr on the sale [email protected] [email protected] T +7 495 786 4040 E [email protected] of their Russian operations to Axel Springer AG Elisabeth Pestl Head of Hotels and Leisure +7 495 786 3041 [email protected]

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CMS provides practical national and cross-border advice for mergers and acquisitions, corporate finance and privatisation projects. With over 2,400 lawyers in 47 cities across Europe, we have perfect solutions for all your legal and tax issues; wherever you are. Visit our website for more information.

— 1st in Europe — Germany, Spain, Italy – Advised Telefónica/O2 on the acquisition of German HanseNet from — 1st in Eastern Europe Telecom Italia

— 1st in France — Austria, CEE – Advised Advent International on the acquisition of the leading Bulgarian bottler of — 1st in Germany mineral water, Devin, from the Soravia Group

— 1st in UK — Russia – Advised Banque PSA Finance on the acquisition of AIG's consumer finance operations ThomsonReuters European in Russia Mid-Market M&A 2009 up to USD500m, by deal count — Russia – Advised VTB Bank on a US$150 million investment to acquire 19.90% of Otkritie Financial Corporation Key contact in Russia: John Hammond | Senior partner T +7 495 786 4040 — Russia – Advised Gruner + Jahr on the sale E [email protected] of their Russian operations to Axel Springer AG

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