Two leading Russian investment banks, Troika Dialog and Trust Investment Bank, have both completed management buy-outs.
Both are designed to cut loose oligarch shareholders ? it is undesirable to have links with them since Yukos was broken up.
For Trust Investment Bank, its MBO had a simple objective ? distance the bank from Menatep, its former owner and the current target of a Kremlin legal assault.
Menatep, whose principal shareholders are the jailed Mikhail Khordorkovsky and Platon Lebedev, previously owned 99.3% of the bank. However, as of November, five senior managers own 80%, with 15 other managers owning smaller stakes.
Illya Yurov, the bank's founder and chairman, owns a slightly larger stake than the other managers. He says: ?There was a certain level of frustration among clients when 70% of our equity was owned by people under criminal charges. Clients were afraid the whole operation would go bust.?
Yurov admits the price the management paid Menatep for the bank ? $107 million ? was at a significant discount. ?It was a price fair to that particular moment,? he says.
Troika Dialog's CEO, Ruben Vardanian, has been trying to complete his MBO ever since 1997, when Troika's founder, Peter Derby, sold 86% of the brokerage to Bank of Moscow for a reported $65 million, leaving Troika management with 15% of the shares.
Vardanian wasn't happy with the new ownership structure, believing that Troika needed to preserve its independence from oligarchic shareholder interests if it were to give its clients the best possible service.
He says: ?Very few professional brokerages in Russia work for their clients. It is more customary to work for their shareholders, and use their money to buy assets for the shareholders.? His goal has been to ensure that Troika is a rare exception.
In April 2002, after years of negotiations, Troika's management signed a deal with Bank of Moscow whereby Troika management would purchase the bank's 86% stake.
It arranged to do this in two stages, buying 30% of the shares in 2002, for $15 million, and agreeing to buy the other 70% in 2004. The shares would be held as collateral by Bank of Moscow in the meantime.
To finance the MBO, Vardanian teamed up with three new shareholders. Alexander Mamut, an oligarch previously connected with MDM Bank, bought a 3% stake in Troika and became board chairman, and Andrei Rappoport, deputy general director of RAO UES, and Valentin Zabadnidov, head of the Federal Council's committee on industrial policy, each bought 1%.
However, it seems to have been a case of out of the frying pan, into the fire. The new oligarch shareholders also clashed with Troika management over control. A long-time client of Troika says: ?Troika got money from the oligarchs, but it paid a high price for it. It was a very difficult relationship between Ruben and them. They demanded stock options and other remuneration.?
At one point in the summer of 2003, the minority shareholders offered to buy out the management. The client says Vardanian almost moved to be head of Rosgosstrakh, an insurance company also owned by Troika.
In December 2003, the conflict between management and owners came into the open, when Rappoport and Zavadnikov complained to newspaper Vedomosti that they weren't being treated as equals by Troika management, and wanted to sell their stake back to the management.
A proper partnership
Now Vardanian appears to have won his battle with shareholders, and Troika's management has finally secured full control over the brokerage by buying the final stake from Bank of Moscow, as it arranged in 2002.
A senior banker at Troika says: ?We will be a proper partnership, like Goldman Sachs or Rothschild.? The number of managers with a significant stake is set to increase from about five to about 15.
Both deals illustrate the attempts banks and brokerages in Russia are making to distance themselves from oligarchs. This is a marked change from the 1990s, when some banks would market their links to powerful industrial groups, claiming it gave them special access to deals and political decisions.
Now, Yurov of Trust says: ?All big banks that were previously connected to oligarchs have to choose a strategy ? everyone is concerned about the future of the oligarchs. It's of particular concerns for banks, as this is a reputation business.?
Some brokerages still make no bones about their links to oligarchs. For example, Vagit Alekperov, CEO of LUKoil, is also a major shareholder in Nikoil, a leading brokerage. Nikoil still believes the link is worth marketing ? its largest mutual fund is called LUKoil One.
Neither MBOs nor LBOs are common in Russia, though some bankers expect both to happen more often this year. One head of corporate finance says: ?This year, the extraction subsidiaries of some large oil companies are planning MBOs.? He adds that he expects more M&A to be financed via debt, through Eurobond and rouble bond issues.