Bigger-than-life Russian whirlwind blows into Chrysler takeover saga


Bradford Wernle and Jack Herman |

Automotive News | 1:00 am, May 14, 2007


Russian billionaire Oleg Deripaska could easily be a villain in a James Bond movie. As a penniless college student, he cut classes and peddled surplus Red Army equipment. Rivals have accused him of fraud and extortion, and legend has it that he survived an assassination attempt in a mountain pass.

Deripaska, a 39-year-old former physics student who reads science texts in his spare time, is a larger-than-life figure who has entered the Chrysler takeover saga.

Last week his holding company agreed to acquire a $1.54 billion stake in Magna International Inc., the leading bidder for Chrysler. If shareholders and Canadian regulators approve, Deripaska's company would own 17 percent of Magna and control six of 14 board seats.

Magna executives say the alliance will give Magna access to Russia's fast-growing parts market. But Deripaska has his own ambitions: His holding company, Basic Element, owns a majority stake in Russian automaker GAZ, and Deripaska wants to transform it into a global player.

His new partner could help him do that.

Humble past

Deripaska's $13 billion fortune makes him the second-wealthiest man in Russia, according to Forbes. The self-made man is now connected, big-time: He's a pal of Russian President Vladimir Putin and is the grandson by marriage of former Russian President Boris Yeltsin.

According to The Guardian, Deripaska was born in the industrial city of Nizhny Novgorod in Siberia, then moved to a small village in the Caucasus Mountains at age 4.

His widowed mother, an engineer, was not wealthy, and Deripaska had to scratch for money when he was in school. According to the London Daily Express, he majored in theoretical physics at Moscow State University but often cut class to run a company that sold surplus Red Army equipment.

According to The Guardian, Deripaska abandoned his studies and began his career as a Siberian smelter, sometimes sleeping next to the factory furnace. The newspaper said he acquired a 20 percent stake in Siberian Aluminum, persuaded the company's workers not to strike, and crushed local gangsters who were active in the area.

Russian underworld

During his rise in the Russian aluminum industry, Deripaska made enemies. According to The New York Times, three metals trading companies accused his company of extortion and murder to gain control of an aluminum smelter in Siberia. The charges were dismissed.

After the fall of the Soviet Union, Deripaska emerged as a big winner in the flurry of "privatization" and bare-knuckles capitalism that swept Russia in the 1990s.

He survived Russia's so-called Aluminum Wars, in which entrepreneurs sometimes hired hit men to kill rivals. According to The Guardian, Deripaska survived an ambush in a mountain pass by would-be assassins wielding rocket-propelled grenade launchers. He denies the story.

Deripaska has gotten attention from U.S. officials. Last year his U.S. visa was revoked after U.S. officials raised questions about his relationship to organized crime in Russia, according to The Wall Street Journal.

There's another potential obstacle to his U.S. prospects: Some analysts say his close ties to the Kremlin might lead regulatory authorities to view his business decisions as extensions of Russian foreign policy.

Russia's new breed of on-the-muscle capitalists "are pretty ruthless cookies," says Garel Rhys, automotive research director at Cardiff University in Wales. "These are hard capitalists, almost in a 19th century sense. Social responsibility isn't something that's percolated their wires yet."





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OLEG DERIPASKA
Age: 39
Net worth: $13.3 billion (No. 40 on Forbes' list of billionaires)
Holdings:

Basic Element, a Russian holding company with control of companies with combined annual revenue of more than $18 billion
Russia's No. 2 automaker, GAZ Group; GAZ and Magna formed a venture in 2006 to make car parts
United Company RUSAL, the world's largest aluminum maker
Aircraft manufacturer Aviacor
Insurance company Ingosstrakh
A variety of construction assets
Source: Forbes, Wall Street Journal, RUSAL, Automotive News research




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No more bartering
Deripaska jumped into the auto industry in 2000, when his company, Siberian Aluminum, paid $300 million for a majority share of the Gorky Automobile Factory, known as GAZ.

GAZ, which was launched in the 1930s with the aid of Ford Motor Co., had become stagnant and unprofitable. The automaker produced the Volga, a 1970s-era limousine once favored by Soviet bureaucrats. Its bloated work force of 100,000 employees produced only 200,000 vehicles a year.

According to The New York Times, Deripaska quickly began a shakeup. He decreed that dealers had to pay cash for vehicles - no more bartering. He canceled a shift at the assembly plant, and canceled production of a new model that he said had no market.

Deripaska hired a well-known auto executive, former Ford of Europe President Martin Leach, to run LDV, a British commercial vehicle maker that GAZ bought last year.

He also bought the tooling for the previous-generation Chrysler Sebring and shipped the equipment to his assembly plant in Nizhny Novgorod. GAZ will sell the Sebring under its own brand.

But this new adventure could make the Sebring deal look like small potatoes.

His alliance with Magna will provide GAZ with components, technology and expertise. And if the Magna forces succeed in their bid for the Chrysler group, Deripaska's ties to the automaker could give him access to international markets.

Will the Magna deal give Deripaska the international legitimacy that he craves? It could turn into a yarn of international intrigue that might make Ian Fleming jealous. c

You may e-mail Bradford Wernle at bwernle@crain.com

You may e-mail Jack Herman at jherman@crain.com