Continental left forever – Kommersant

The German tire manufacturer Continental decided not to reserve the right to buy back the plant and distributor in the Russian Federation, selling them to Armen Sargsyan’s S8 Capital group. The closing of the transaction, the amount of which, according to Kommersant, amounted to no more than 10 billion rubles, S8 announced on May 22. The Russian company, like Tatneft, as part of the purchase of Nokian Tires assets in the Russian Federation, received one of the brands of the Continental portfolio – Gislaved. The parties agreed on a deal back in February, but it was delayed due to lengthy regulatory approvals.

The deal to sell the Russian assets of Continental to Armen Sargsyan’s S8 Capital group does not imply a buyback option by the German tire manufacturer, Kommersant was told at S8 Capital. The deal was closed on May 22. Its perimeter included a tire manufacturing plant in Kaluga and a distribution company (Continental Tires Rus LLC and Continental Kaluga LLC).

Kristina Ikayeva, Senior Associate in the Commercial Practice at Kosenkov & Suvorov Law Firm, notes that foreign investors usually use an option to buy back an asset in order to reserve the opportunity to return to the Russian market in the future, when the geopolitical situation stabilizes. “According to experience, this tool is found in more than 50% of contracts. A common buyback period is 10–15 years, but there are also longer periods, for example, up to 30 years,” she notes.

As part of the deal with Continental, the Russian holding received the rights to the Gislaved tire brand, S8 told Kommersant. Other brands under which tires will be produced at the plant in Kaluga have not yet been named.

Similarly, Nokian Tires, having sold its tire plant in Vsevolozhsk to Tatneft, transferred to it a minor brand of Nordman tires.

The site in Kaluga produced tires of three brands: the main line Continental, Gislaved and the most budgetary Matador. “The plant will continue to use the existing know-how and technologies in production. Also, under the terms of the deal, R&D in the field of the component base and product is preserved, which will ensure the further development of technologies and the development of new modern tires,” S8 added.

Now the former Continental plant continues to work – S8 Capital specifies that in the near future they expect to reach capacity utilization of 80% from the current 50%. The capacity of the enterprise is 4 million tires per year with the prospects of expanding to 16 million tires. S8 Capital notes that demand in the Russian secondary market shows a positive trend compared to last year. Currently, products for primary equipment are supplied to Haval, UAZ and AvtoVAZ, while the Kaluga car plants are still idle. Before the crisis began, the plant supplied tires, including to Volkswagen in Kaluga – the deal to sell the enterprise to the structures of the Avilon auto dealer was closed last week.

The amount of the transaction for the sale of Continental’s business in Russia was not disclosed, but, according to Kommersant, it could amount to 7-10 billion rubles.

This is comparable to €87 million, in which Continental itself estimated its Russian assets. As Kommersant reported, the companies entered into a deal back in February, but it was delayed due to the lengthy approval process by the US export control regulator (see below). “Kommersant” dated April 28).

The Continental-owned companies will be included in C8 Industrial Assets, which will acquired former assets of the German Bosch – factories for the production of spark plugs, power tools and a site for the production of heating boilers. The S8 group also includes the largest lottery distributor Stoloto, the former Russian assets of the American elevator manufacturer Otis (now the Meteor brand).

Olga Nikitina, Dmitry Kozlov