Continental rolled up the buyer
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S8 Capital of Armen Sargsyan wants to acquire the assets of the German Continental in Russia, including a tire plant in Kaluga. The investor has already become the owner of the plant that produced Otis elevators in Russia. Continental reported that they were at an advanced stage of negotiations to leave the Russian Federation. Armen Sargsyan appeared in the media as a partner of the founder of the Avilon car dealer, Alexander Varshavsky. Now the dealer is in the process of buying another Kaluga asset in the automotive industry, the Volkswagen plant.
S8 Capital wants to acquire Continental’s Russian assets, in particular the plant in Kaluga, two sources familiar with the deal told Kommersant. Continental CEO Nikolai Setzer said on March 8 that the company is discussing the sale of assets. “The war is the reason for our controlled withdrawal from Russia. This means the sale of our activities, including our plant in Kaluga. We are at an advanced stage in the sale process,” he said.
S8 Capital itself develops IT solutions in the financial sector, retail, telecommunications, e-commerce and media, owns Stoloto, a distributor of state lotteries. The media called Armen Sargsyan a business partner of Alexander Varshavsky, the owner of the Avilon car dealer. The latter, for example, also participated in the launch of the S8 Capital online car leasing service for individuals Next.Car. Now Avilon is buying the Russian Volkswagen plant in Kaluga (see Kommersant Online, March 1). But this is not the first experience for S8 Capital of acquiring the assets of companies leaving the Russian Federation: in the summer of 2022, the Ministry of Industry and Trade announced that the group had acquired the Russian business of the American elevator manufacturer Otis Worldwide Corporation. Formally, the buyer was the Ice Development investment company.
Continental did not comment on the buyer and the terms of the deal, saying only that they are considering various strategies in relation to the assets, including a controlled exit from the market. “Representative offices of the company, in particular Continental Tires Rus LLC and Continental Kaluga LLC, continue to operate as usual, fulfilling obligations to customers, employees and partners in full,” the company added. S8 did not respond to the request “Kommersant”.
The Continental plant in Kaluga began operation at the end of 2013, with an investment of €240 million. The site produces three Continental, Gislaved and Matador tires from 13 to 20 inches, with a capacity of 4 million tires per year with the prospect of expanding to 16 million units. The products were supplied both to car factories for the original equipment of cars, and to the market.
The plant, like many enterprises of foreign investors in the Russian Federation, stopped production after the outbreak of hostilities in Ukraine. In June 2022, Continental said that “traditionally, tire manufacturers in Russia depend on foreign raw materials, since there are about 60 different materials in the tire formulation, some of which are not produced in Russia” (see “Kommersant-Online” dated June 28, 2022 of the year).
However, production was resumed in the summer, which Continental explained as “criminal risks” for local employees if the company does not meet domestic demand. They emphasized that tires are supplied only for civilian purposes. The enterprise, like other tire factories of foreign brands in the Russian Federation, supplied tires for export before the crisis began. According to the website of the investment portal of the Kaluga region, deliveries went to European countries, Canada and China. Now the export of tires from Russia to the EU and North America is impossible due to sanctions.
In addition to the tire business, Continental in the Russian Federation has Continental Automotive Systems Rus plants (electronic auto components and elements of fuel supply and injection systems) and Kontitech (pipelines for automotive air conditioning systems and power steering systems).
The interlocutors of Kommersant among the participants in the tire industry emphasize that the Continental plant is the last profile asset put up for sale after Nokian Tires and Michelin. They add that without software and compounding, buyers will not be able to continue to produce products from foreign brands leaving the market and in fact buy only equipment and molds.
The head of Infoline-Analytics, Mikhail Burmistrov, believes that the fair value of enterprises is at least $100 million, while Continental has already reflected the impairment of assets in the Russian Federation in the latest financial statements by €87 million. The expert clarifies that the value of assets in accordance with the conditions which are designated by the government commission, then must be discounted by at least 50%, and installment payment will also be applied. In his opinion, the real value of the deal could be 2-3 billion rubles, “but, most likely, closer to the lower limit.”
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