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The "Mergers and acquisitions" №5 (39)/2006

TENDENTIOUS BARGAIN

In March, 2006, "Sibneft” didn’t even announce its purchase of the EPetrol Multi-fuel Filling Complexes chain - MFCs (MAZK) from the oil-trader “RC-GasNetworkService". Someone might think the Sibneft Holding does not seem to consider it a good bargain, as it may only slightly increase the Sibneft’s share of the oil-related products’ sale. However, the deal presents an interest because it creates at once a few long-term tenders in the domestic oil market which at present witnesses a great deal of competitors.

The EPetrol Multi-fuel Filling Complexes project (MFCs / MAZK) was initiated in 2003 and developed by the Representative office of the Douglas Consulting Establishment, which belongs to the Maybach Holding Establishment, registered in Lichtenstein. The investor and the owner of the MFCs has always been the company whose name is difficult to pronounce, - the “Regional company for developing gas chains and introducing new technologies” - ( "RC-GasNetworkService"). The company was founded in 2003, exactly at the time of founding Douglas Consulting and developing the MFCs project.

The majority of other implications indicate that "RC-GasNetworkService" is not at all an attracted investor from outside, but a very good partner of Douglas Consulting. It was founded at the time when Douglas Consulting started developing a project of eco-friendly filling complexes. A little earlier the Moscow region authorities had been holding a tender within a framework of developing the Moscow region fuel supply complex, where the main attention was paid to the development of the gas-fuel market, the construction of gas-filling stations and the liquefied petroleum gas storehouses. Director General of "RC-GasNetworkService" is the Head of the Russian Representative office of Douglas Consulting Alexander Schnaider.

Partly, it was the "RC-GasNetworkService" establishment’s intricate policy and absolute lack of its structure transparency which caused skepticism to some experts, when in Autumn 2005 issuing their first 1 billion Rubles bonds, the company announced the IPO preparation. The trader whose turnover, according to their own information in 2005, made a total of 55 million Rubles, intended, first of all, to place the initial public offering at the London Stock Exchange in 2006. The revenue was supposed to be reinvested into further development of the EPetrol chain, which had had to have over 30 Multi-fuel Filling complexes, selling fuel/diesel/LPG, by the moment of bidding at the LSE. On the whole, the project envisages the construction of 100 MFCs (MAZK) around some major federal highways in the Moscow, Tver, Nizhniy Novgorod and Leningrad regions.

Some analysts have made a conclusion that the project of the company, which is not the oil producer itself, will be considered by the potential investor high-risky even during the preparation to bid at the LSE. It may have forced "RC-GasNetworkService" to refuse from its ambitious plan. However, it seems that those who understood the announcement of the IPO as a well-staged bluff were quite right, when they thought that it was directed at the increase of interest to the non-typical Multi-fuel Filling complexes chain. According to Mr. Schnaider, in mid March, "Sibneft" agreed to be the EPetrol project investor. The off-shore shareholders approved signing the preliminary agreement of "RC-GasNetworkService" and “Sibneft”.

The mighty will acquire the weak

The EPetrol purchase is one of the trends in the oil retail market typical for vertically-integrated holdings increasingly replacing independent operators. Apart from a multitude of deals on acquiring independent and “nameless” filling stations (AZS), which are not attracting major attention to themselves in the market, it’s worth mentioning the acquisition of the Grand and Korus multi-service chains by "Rusneft. The oil producer has spent on such chains over $150 million. The tendency of retail oil sellers’ acquisition is predicted to be topical for a long time.

The market experts don’t try to estimate the "Sibneft" and "RC-GasNetworkService" deal value. The parties won’t announce the value as well. Ideally, according to Anton Rubtsov, the Rye, Man & Gor Securities company’s analyst, the sum must be equal to the costs for the construction of 20 MFCs; each of them, according to the statement of Dmitry Belenov, Deputy Financial Director of Douglas Consulting, may have cost “Sibneft” from $1.5 to $3 million, depending on the configuration and extra services infrastructure (considering that the average cost of commissioning a standard MFC is from $300 to $500 thousand). However, on the other hand, integrated in Douglas Consulting "RC-GasNetworkService" is having obvious problems with financing a long term project which may have decreased the purchase value for the oil holding. All in all, the value of the deal may have amounted to $35 to $40 million.

Alexander Schnaider says that Douglas Consulting is planning to develop the EPetrol, project further; then Sibneft will take over the constructed MFCs and make them its premium brand. Though, Timur Hairullin, the IK FINAM’s analyst believes that owing to the EPetrol deal, the Sibneft’s share in the region will only slightly increase and it may be less than by 1%. However, he notes that as long as one of the priority activities of the holding development in recent time has become the increase of oil processing and the expansion of the MFC chain in the European part of Russia, where the company has access to the Moscow and Yaroslavl SPF, EPetrol can be seen as the start for further development.

Sibneft’s major filling stations (AZS) are located in Siberia. The company manages 1,800 AZSs all over the country. A little more than 80 Sibneft’s AZSs have appeared in the capital. MFCs have become part of Sibneft just recently; Sibneft possesses just few of them; they are, like the rest of the company’s MFCs, located unsystematically. EPetrol presents an interest to Sibneft in terms of offering a comprehensive concept approach to the project development as well as to the already established and well-positioned brand.

Service gaining power

EPetrol bases its concept on the MFCs project promotion system. According to A. Schnaider, the concept’s main idea lies in the application of different factors at the same time and place. A customer-oriented service approach has been created at the EPetrol complexes: they not only offer different types of fuel, technical support and a car wash, but also a cafe, a store, including 2 thousand articles of convenience goods, heated and clean WCs, a system of discounts, round-the-clock Wi-Fi access to the Internet and other services.

However, the EPetrol synergy effect has been achieved owing to a comprehensive strategy of the brand’s expansion. 100 MFCs are to be constructed on the major federal highways within the European Union borders in the West and North-West towards the location of the towns of Nizhniy Novgorod, Chelyabinsk and Cheboksary on the East in 50-100 kilometers from one another. "Thus, our concept — is to guide a motorist, who has happened to appear on a highway with the EPetrol MFCs, ‘from the start point to the end’, — says A. Schnaider. — If a motorist could implement 90 percent of his/her needs at MFCs, then there will be a higher probability that this particular motorist will visit the EPetrol complex again in the next 100-200-300 kilometers. This effect will also work when the same person will visit the complexes in the future as he/she is becoming a participant of different systems of discounts “

Mr. A. Schnaider is sure, that, first of all, due to the EPetrol unique service approach, the MFCs fuel sales will make a total of 30 to 40 thousand liters a day. In comparison, at the BP filling complexes, which are most similar to the EPetrol brand in terms of the corporate policy, the average fuel sales make 22 thousand liters a day.

Meanwhile, the branding necessity of fuel services is becoming more and more popular. According to the Ministry of Interior’s data, about 25% of the country’s fuel sale is related to the forged trademarks, very often of a very low quality. In recent time, the consumers’ credibility to brands has been dramatically increasing. Even filling stations without brands, whose services have been positioned as a luxury class, witness a great deal of customers. As a result, a new trend of consumers’ behaviour is affecting multi-serv ice format filling stations, where a significant part of revenue comes from the revenue of extra business services provided by them.

For example, nowadays the oil-related sales’ share of European filling complexes on average amounts to not more than 50%. In Russia, customers are attracted by their increased comfort level and broad infrastructure: cafes, convenience stores, car washes. It means that the specified format is not the EPetrol unique achievement. Much more significant for this trend has become the equipment of filling complexes with the systems selling gas-fuel, which indicates a rising potential of the specified segment. EPetrol fully corresponds to this criterion.

Gas expansion

It would be logical to assume that Sibneft has acquired the EPetrol brand considering the Gazprom interest as well. In the last two years, EPetrol has raised the gas-fuel sale’s share from 5% to 20%. The gas monopolist, in turn, is actively creating ways which could improve the development of gas-related projects in the domestic market. The gas-fuel sale is not the least in this aspect.

Experts estimate that in the last three years, the Russian commercial gas-fuel market’s share has risen three times, making a turnover of $1 billion annually. Naturally, Gazprom has noticed this attractive market segment. So far, Gazprom controls 87% of the gas-filling compressor complexes for vehicles - GCCV (AGKS) all over the country. According to the company’s specialists’ calculations, only for the second part of 2005, the natural compressor gas sales of Gazprom increased almost by 40%.

Thus, on the whole, the Sibneft purchase of the EPetrol MFC chain means the start of a new stage of the Gazprom activities for developing the country’s gas-fuel sales market. Even a few years ago, Gazprom initiated a discussion about a concept of transport conversion to gas-fuel, appealing to the need of economizing the oil resources. In particular, Gazprom has long been lobbing the program of the city’s passenger transport conversion to gas as it is thought to be more economical and increasing the engine’s life-cycle. Among the first advantages, there is the beginning of cooperation with the Swedish bus producer Scania AB, and the Gazprom’s branch "Lentranzgas", St. Petersburg and GUP "Passazhiravtotrans" which deals with the St. Petersburg buses conversion to gas.

Obviously, for Gazprom or Sibneft it won’t seem difficult to purchase and integrate into their structure at ones a few smaller AZS chains with the established and already promoted brands, similar to EPetrol. The companies could economize time while entering the market, where such major holdings as TNK-BP, Siburgazservice and Transneft are already actively participating. According to the company’s PR Director Maxim Shub, for the English-Dutch Concern Shell, recently appeared in Russia, work with the alternative types of fuel will become one of the priority activities as well.

However, most probably, Gazprom and its subsidiary Sibneft will be buying already established chains and gaining advantages not only in one of the most prospective segments of the fuel market — the gas segment, but also in the sale of petrol and diesel fuel.

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