Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings)
The paper studies the formation of powerful holdings in the Russian chemical and petrochemical industry as well as the latest tendencies on the merges - acquisitions industry market. The industry is being reformed and consolidated; the monopoly structures are created. Strategic synergism plays an im...
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Інститут економіки промисловості НАН України
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| Цитувати: | Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) / A.Z. Shevtsova // Економіка промисловості. — 2014. — № 1 (65). — С. 118-126. — Бібліогр.: 20 назв. — англ. |
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Shevtsova, A.Z. 2014-06-09T17:23:36Z 2014-06-09T17:23:36Z 2014 Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) / A.Z. Shevtsova // Економіка промисловості. — 2014. — № 1 (65). — С. 118-126. — Бібліогр.: 20 назв. — англ. 1562-109Х https://nasplib.isofts.kiev.ua/handle/123456789/64030 338.24:005.7:661(470) The paper studies the formation of powerful holdings in the Russian chemical and petrochemical industry as well as the latest tendencies on the merges - acquisitions industry market. The industry is being reformed and consolidated; the monopoly structures are created. Strategic synergism plays an important role in these processes. The relevance of this study is high because similar processes are currently undergoing in the Ukrainian chemical industry. The main objective of the current work is to study and summarize the rich Russian experience in implementation of integration strategies in the chemical complex and analyze their synergetic basis. The conducted research proved that the imperative of modern integration strategies in the chemical industry business structures is organizing and implementing different kinds of synergies with the goal of creating a sustainable basis for their competitive advantages in both domestic and global markets. As a result, the large vertically integrated chemical holdings that seek and retrieve the well-known benefits of synergism are formed. It is explored that currently the main trend of M&A industry market is a focused construction of full chains of interrelated business segments. This includes own raw materials base, efficient processing capacities, logistics and distribution networks. It is shown that the acquisition of foreign production assets, transportation and distribution systems and receiving synergetic advantages associated with that is one of the modern tools for advancing on international markets. Synergy-based integration strategies should be considered as a mechanism for creating strong national integrated structures with aim to withstand the global industry giants. The current trend aimed at consolidating the Russian chemical industry should be preserved in the nearest perspective. The Ukrainian chemical assets are still a target for acquisition strategies of Russian holdings. Досліджено досвід формування потужних холдингових компаній у хімічній та нафтохімічній промисловості Росії та останні тенденції на галузевому ринку злиття - поглинання. Обґрунтовано, що імперативом сучасних інтеграційних стратегій галузевих бізнес-структур є організація і реалізація різних видів синергії з метою формування міцної основи їх конкурентних переваг на внутрішніх і світових ринках. Исследован опыт формирования мощных холдинговых компаний в химической и нефтехимической промышленности России и последние тенденции на отраслевом рынке слияния - поглощения. Обосновано, что императивом современных интеграционных стратегий отраслевых бизнес-структур является организация и реализация разных видов синергии с целью формирования устойчивой основы их конкурентных преимуществ на внутренних и мировых рынках. en Інститут економіки промисловості НАН України Економіка промисловості Problems of industrial enterprises’ and production complexes’ economics Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) Організована синергія як імператив інтеграційних стратегій (на прикладі російських хімічних та нафтохімічних холдингів) Организованная синергия как императив интеграционных стратегий (на примере российских химических и нефтехимических холдингов) Article published earlier |
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Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| collection |
DSpace DC |
| title |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) |
| spellingShingle |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) Shevtsova, A.Z. Problems of industrial enterprises’ and production complexes’ economics |
| title_short |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) |
| title_full |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) |
| title_fullStr |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) |
| title_full_unstemmed |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) |
| title_sort |
organized synergy as an imperative of integration strategies (based on the study of russian chemical and petrochemical holdings) |
| author |
Shevtsova, A.Z. |
| author_facet |
Shevtsova, A.Z. |
| topic |
Problems of industrial enterprises’ and production complexes’ economics |
| topic_facet |
Problems of industrial enterprises’ and production complexes’ economics |
| publishDate |
2014 |
| language |
English |
| container_title |
Економіка промисловості |
| publisher |
Інститут економіки промисловості НАН України |
| format |
Article |
| title_alt |
Організована синергія як імператив інтеграційних стратегій (на прикладі російських хімічних та нафтохімічних холдингів) Организованная синергия как императив интеграционных стратегий (на примере российских химических и нефтехимических холдингов) |
| description |
The paper studies the formation of powerful holdings in the Russian chemical and petrochemical industry as well as the latest tendencies on the merges - acquisitions industry market. The industry is being reformed and consolidated; the monopoly structures are created. Strategic synergism plays an important role in these processes. The relevance of this study is high because similar processes are currently undergoing in the Ukrainian chemical industry. The main objective of the current work is to study and summarize the rich Russian experience in implementation of integration strategies in the chemical complex and analyze their synergetic basis. The conducted research proved that the imperative of modern integration strategies in the chemical industry business structures is organizing and implementing different kinds of synergies with the goal of creating a sustainable basis for their competitive advantages in both domestic and global markets. As a result, the large vertically integrated chemical holdings that seek and retrieve the well-known benefits of synergism are formed. It is explored that currently the main trend of M&A industry market is a focused construction of full chains of interrelated business segments. This includes own raw materials base, efficient processing capacities, logistics and distribution networks. It is shown that the acquisition of foreign production assets, transportation and distribution systems and receiving synergetic advantages associated with that is one of the modern tools for advancing on international markets. Synergy-based integration strategies should be considered as a mechanism for creating strong national integrated structures with aim to withstand the global industry giants. The current trend aimed at consolidating the Russian chemical industry should be preserved in the nearest perspective. The Ukrainian chemical assets are still a target for acquisition strategies of Russian holdings.
Досліджено досвід формування потужних холдингових компаній у хімічній та нафтохімічній промисловості Росії та останні тенденції на галузевому ринку злиття - поглинання. Обґрунтовано, що імперативом сучасних інтеграційних стратегій галузевих бізнес-структур є організація і реалізація різних видів синергії з метою формування міцної основи їх конкурентних переваг на внутрішніх і світових ринках.
Исследован опыт формирования мощных холдинговых компаний в химической и нефтехимической промышленности России и последние тенденции на отраслевом рынке слияния - поглощения. Обосновано, что императивом современных интеграционных стратегий отраслевых бизнес-структур является организация и реализация разных видов синергии с целью формирования устойчивой основы их конкурентных преимуществ на внутренних и мировых рынках.
|
| issn |
1562-109Х |
| url |
https://nasplib.isofts.kiev.ua/handle/123456789/64030 |
| citation_txt |
Organized synergy as an imperative of integration strategies (based on the study of Russian chemical and petrochemical holdings) / A.Z. Shevtsova // Економіка промисловості. — 2014. — № 1 (65). — С. 118-126. — Бібліогр.: 20 назв. — англ. |
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–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
118 ISSN 1562-109X
2014, № 1 (65)
UDC 338.24:005.7:661(470) Anna Zievna Shevtsova,
PhD in Economics
The Institute of the Economy of Industry
of the NAS of Ukraine, Donetsk
ORGANIZED SYNERGY AS AN IMPERATIVE OF INTEGRATION STRATEGIES
(BASED ON THE STUDY OF RUSSIAN CHEMICAL
AND PETROCHEMICAL HOLDINGS)
Ukrainian chemical industry is under-
going important institutional changes in the re-
cent years. They are caused by active industry
reformation and consolidation processes. The
transition to bifurcation mechanisms in devel-
opment of large chemical enterprises was cata-
lyzed by the fall in market conjuncture and
growth in commercial risks caused by global
financial and economical crisis as well as deteri-
orating situation in the energy sector. It is ob-
vious that in modern conditions the ability of
enterprise owners to ensure a stable supply of
energy and material resources at affordable pric-
es became the main external profitability factor
in the industry. Hence, the search of competitive
advantage factors has shifted from the economic
area into institutional and political areas.
Starting from 2010 the key events on the
mergers and acquisitions (M&A) industry mar-
ket are related to activities in the nitrogen and
titanium sub-sectors of Ostchem Holding AG
which is controlled by the Group DF holding.
The forming and structural features of groups’
chemical assets in Ukraine were studied in the
previous article [1]. The study showed that the
key motives and benefits for creating this group
of companies were organizing synergy and es-
tablishing almost monopolistic control over the
industry.
The large Russian chemical holdings have
similar in content but wider in scale experience
in using strategic synergism. Therefore, study-
ing, systematization and analysis of their expe-
rience is a relevant scientific and practical task
within the general problem of improving the
enterprise management efficiency based on syn-
ergy.
The importance of studying Russian expe-
rience in the enterprise integration development
is also caused by the fact that the issues of sup-
plying Ukrainian industry (including nitric sub-
sector) with energy and natural resources have
mainly situational solutions. Ukrainian relations
with major natural gas supplying countries are
instable. But even if not taking this fact into ac-
count, it has been obvious for a while that in the
long term perspective domestic producers will
not independently withstand the strong pressure
from the gas monopolists. Therefore, it is neces-
sary to develop new ways of managing institu-
tional changes in the chemical industry, form
and use the full synergetic interactions potential
in the framework of implementing different in-
tegration strategies. These actions will help to
maintain and enhance the competitive advantag-
es of basic enterprises.
A wide range of foreign and domestic
publications on strategic synergism became a
theoretical and methodological basis for the cur-
rent study. The collection of papers by known
Western scientists (I. Ansoff, M. Porter, R.
Moss Kanter, R. Rumelt, A. Campbell, S. Gho-
shal, H. Itami and others) [2] has been a basic
information source in a Russian-speaking scien-
tific community for a decade. The core of these
studies lays in understanding the high synergism
potential and the need for its use in the enter-
prises integration strategies (including M&A).
The article by Campbell [3] should be also men-
tioned within the context of current study. The
author describes the difference between two
types of acquisition – integration deals and port-
folio deals. He points on the growing success of
deals especially when “each type of deal is justi-
© A.Z. Shevtsova, 2014
PROBLEMS OF INDUSTRIAL ENTERPRISES’
AND PRODUCTION COMPLEXES’ ECONOMICS
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 119
2014, № 1 (65)
fied by a different logic and managed in a dif-
ferent way” (p. 22). In addition, Campbell re-
views areas from where synergies may come. R.
Moss Kanter also writes about the importance of
finding synergism during the integration oppor-
tunities analysis in a growing economy: “A great
company can become even better by learning
from an acquisition's best talent” [4, р. 123].
Big attention to the essence, types,
sources, assessment and ensuring of positive
synergism in the integration processes is also
given in the publications of Ukrainian and Rus-
sian scientists. In particular, this study is based
on scientific works of S. Savchuk [5], Y. Rod
and A. Savuschyk [6], O. Kyrychenko and O.
Vaganova [7], M. Gluschenko [8], Y. Dejneka
[9], V. Makedon [10]. Part of the studies is em-
pirical and examines the characteristics of syn-
ergy-based integration strategies in particular
industries. For example, I. Buleev and S. Boga-
chev [11] study the formation of integrated
structures and their practical activity in the steel
industry and municipal sector based on the syn-
ergetic approach. F. Dermentli [12] examines
the characteristics of organizing integrated cor-
porate structures in the tube production and of-
fers a methods for determining the synergetic
effect caused by such integration.
Similar problems are standing in front of
business structures in the Ukrainian chemical
industry. Hence, the main objective of the cur-
rent work is to study and summarize the rich
Russian experience in implementation of inte-
gration strategies in the chemical complex and
analyze their synergetic basis. This is a logical
step forward within the general synergy-focused
research direction.
Powerful vertically and horizontally inte-
grated companies play a dominant role in the
institutional structure of Russian chemical and
petrochemical industry since late 1990s. They
combine upstream and downstream enterprises,
logistics operators and distribution networks
(currently they are SIBUR, EuroChem, Acron,
PhosAgro, URALCHEM, Uralkali , SDS Azot,
Bashkirian Chemistry, SANORS and others).
The Figure shows the share of the main
Russian producers in the nitrogen segment of the
“big” chemistry. The figure proves the role of
these companies and their importance in the sec-
toral production structure. Moreover, the key
financial and economic indicators of leading
chemical, petrochemical and agrochemical hold-
ings (see Table 1) reveal the scale and efficiency
of this business.
EuroChem created in 2001 includes en-
terprises in mining and chemical industries:
Kovdorskiy GOK (Murmansk region), Euro-
Chem – Usolskiy Potash Complex (Perm re-
gion), Phosphorit (Leningrad region), Nevinno-
mysskiy Azot (Stavropol region), Novomoskov-
skiy Azot (Tula region ), EuroChem – BMU
(Krasnodar region), Kazakh EuroChem Fertiliz-
ers and Lithuanian Lifosa [14]. Following an
active trade policy EuroChem created a network
of distribution centers in Russia and Ukraine.
The holding also includes EuroChem –
VolgaKaliy that was created to develop the
Gremyachinskoe potash deposit in the Volgo-
grad region. After commissioning the produc-
tion capacities of potassium chloride at Gremya-
chinskiy GOK, EuroChem will become the first
company in Russia and third in the world to
produce the whole range of mineral fertilizers –
nitrogen, phosphate and potash.
In 2012 EuroChem acquired a mineral
fertilizers production asset in Antwerp (Bel-
gium) from BASF. This asset was named Euro-
Chem Antwerpen. The same year EuroChem
bought K+S Nitrogen (currently known as Eu-
roChem Agro distribution network) from a
German manufacturer of chemical fertilizers and
plant protection products called K+S Group.
These agreements were signed within the Euro-
Chems strategic plans in expanding its presence
on the global fertilizer market, including through
acquisitions.
However, the main problem of chemical
and petrochemical industry is its heavy depen-
dency on raw materials and energy costs. If dis-
cussing the nitrogen segment, recently the situa-
tion became even more exacerbated. The reason
behind that is liberalization of the Russian natu-
ral gas market. (Surely, the target price of $150 /
thousand cubic meters for Russian fertilizer pro-
ducers seems not very high compared to sky-
high natural gas prices for domestic industrial
consumers. But when comparing it to the prices
for main competitors – $16-48 in the Persian
Bay countries, $32-48 in Latin America, it be-
comes clear that maintaining competitiveness is
a relevant issue for Russian chemists).
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
120 ISSN 1562-109X
2014, № 1 (65)
Ammonia
URALCHEM
20,2%
TogliattiAzot
16,0%
Acron
12,3%
MINUDOBRENIYA
(Rossosh)
8,1%
ProsAgro
8,0%
SDS Azot
7,6%
Kuibyshev Azot
4,1%
Others
3,9%
Euro Chem
19,8%
Nitrogenous fertilizers
URALCHEM
20,30%
Acron
13,80%
MINUDOBRENIYA
(Rossosh)
4,80%
ProsAgro
13%
SDS Azot
8,30%
Kuibyshev Azot
5,40%
Others
7,60%
Euro Chem
26,90%
Figure. Production structure for the nitric subsector main products in Russia, 2012
(data from AZOTECON PLUS Ltd., source [13, p. 23, 24])
Hence, the manufacturers’ efforts in this
segment aimed at implementing the strategy of
backward integration and investment in gas pro-
duction assets seems reasonable. For example,
in 2012 EuroChem acquired Severneft-Urengoy
natural gas producer to create a resource security
foundation and develop own nitrogen business.
As a result, the groups’ self-sufficiency in natu-
ral gas increased to 25%.
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 121
2014, № 1 (65)
Table
The main performance indicators of key Russian chemical holdings
in 2011-2012 according to International Financial Reporting Standards*
Year
Indicator
Revenue Net profit EBITDA** Profitability accord-
ing to EBITDA
mln. rubles mln. rubles mln. rubles %
SIBUR
2011 248660 62799 86669 35
2012 271330 60085 82291 30
Growth rate, % 109.1 95.7 94.9 -5
EuroChem
2011 131298 32031 49656 38
2012 166478 32569 49168 30
Growth rate, % 126.8 101.7 99.0 -8
Acron
2011 65431 20328 20856 32
2012 71112 14861 19924 28
Growth rate, % 108.7 73.1 95.5 -4
PhosAgro
2011 100518 22476 35370 35
2012 105303 24510 34695 33
Growth rate, % 104.8 109.0 98.1 -2
$ mln. $ mln. $ mln. %
URALCHEM
2011 2080 445 750 36
2012 2423 665 839 35
Growth rate, % 116.5 149.4 111.9 -1
Uralkali
2011 3496 1185 2068 70
2012 3950 1597 2375 71
Growth rate, % 113.0 134.8 114.8 1
* Created by author according to the companies’ integrated reports (for example, [13] and others). Origi-
nal measuring units were not modified.
** EBITDA is calculated by adjusting operating income with amortization of fixed and intangible assets,
profit or loss from exchange rate differences, other non-cash and non-standard items.
Acron agrochemical holding includes
producers of mineral fertilizers and organic syn-
thesis products: Acron (Veliky Novgorod), Do-
rogobuzh (Smolensk region), Hongri Acron
(China, Shandong Province), mining projects:
North-Western Phosphorous Company (Mur-
mansk region), Verkhnekamsk Potash Company
(Perm region), North Atlantic Potash Inc (Cana-
da), as well as logistics operators (Russian
Acron-Trans, Andrex, Estonian AS BCT, AS
DBT) and own distribution systems (Agronova,
Chinese Yong Sheng Feng) [15].
The Acron group is currently implement-
ing an ambitious fertilizers segment develop-
ment strategy aimed at building own resource
base and deepening vertical integration. Several
resource projects are implemented simulta-
neously: phosphate (GOK Oleniy Ruchey at
Murmansk region) and potash (Talitsky GOK at
Perm region and the development of potash de-
posits in Canada). Holdings management also
considers hedging risks associated with provid-
ing natural gas by acquiring gas assets.
In addition to obtaining resource indepen-
dence, Acron is working on processing of am-
monia, apatite concentrate and potassium chlo-
ride surpluses into products with high added
value. In other words, the holding is looking for
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
122 ISSN 1562-109X
2014, № 1 (65)
synergy in direct integration projects. The
Acrons acquiring efforts aimed at Polish Azoty
Tarnow chemical company in 2012 must be as-
sessed from this point of view. Although the
deal was scaled down (Acron acquired only
13.78% in Azoty Tarnow), now the holding is
the second largest shareholder of the Polish
company. Its production capacities are consi-
dered by Acron as a bridgehead for developing
activities in the European Union.
PhosAgro holding is a vertically inte-
grated structure with a full production cycle of
phosphate fertilizers (54% of Russia's produc-
tion output in 2012). Recently, the company is
implementing a strategy of increasing capitaliza-
tion and improving overall efficiency by conso-
lidating shareholdings of major enterprises. At
the moment, it includes nearly 96% of the main
apatite and nepheline concentrate producer
called Apatit (Murmansk region), PhosAgro-
Cherepovets (established as a result of merge
between Ammophos and Cherepovetsky Azot at
Vologda region), Balakovo Mineral Fertilisers
(Saratov region), Metachem, Agro-Cherepovets,
PhosAgro-Trans (transportation), Phos-Agro-
Region (storage and distribution), NIUIF
(science and engineering) [16].
In October 2007 the Russian chemical
market got a new player – URALCHEM. Cur-
rently it unites such large Russian mineral ferti-
lizers production enterprises as Mineral Fertiliz-
er Plant of Kirovo-Chepetsk Chemical Works
(Kirov region), Azot Branch of URALCHEM
(Berezniki, Perm region), Minudobrenia (Perm),
Voskresensk Mineral Fertilizers (Moscow re-
gion). The Group also owns a small stake in
TogliattiAzot. In addition, the holding includes
Cypriot “daughter” called UralChem Freight
Limited, transport and logistics operators
(URALCHEM-TRANS, Latvian SIA Riga Ferti-
lizer Terminal), a number of trading companies
(TD URALCHEM, Brazilian UralChem Trading
Do Brasil Ltda, Latvian SIA UralChem Trading)
[17].
During 2008-2012 URALCHEM actively
signed deals in merging and consolidation of
agrochemical assets. For example, 100% share
of Azot was consolidated in 2008. In 2010 Azot
was reorganized in form of a merge with
URALCHEM. In 2011 URALCHEM increased
its effective shareholding in MFP KCCW and
VMF to 100%. In 2012 the holding purchased
43.5% stake in Minudobrenia and acquired the
sole control of that enterprise. Such consistent
policy is aimed at implementing synergetic ef-
fects connected to the optimization of internal
cash flows management, administrative costs
reduction and increase in investments attractive-
ness.
The consolidation (or rather monopoliza-
tion) of Russian potash industry occurred in
2011: the two competitors Uralkali and Sylvinit
united (they are both located in the Perm region
and were part of a single industrial complex in
Soviet times). Thus, one of the most powerful
potash companies was formed (its share on the
global potash fertilizers market is about 20%). It
implements a vertically integrated business
model and controls the entire logistic chain from
potassium ore production to potassium chloride
supply [18]. Uralkali managers evaluated the
synergetic effect of merge with Sylvinit at the
rate of $300 mln. Such numbers supposed to be
reached through restructuring production, ad-
ministrative and logistic processes, optimizing
staff and service functions. Another significant
consequence of the merge for manufacturers
was the removal of internal competition and in-
crease in products prices.
In fact, the described process was a raider
scheme that allowed eliminating a successful
competitor. The ultimate goal of the scheme was
a significant increase in capitalization of the
united company and its speculative resale.
In 2013 Uralkalis top managers tried to
takeover Belaruskali (its market value is about
$30 bln.) with the help of other raider tools. But
this attempt was foiled by the Belarusian gov-
ernment structures.
Bashkirian Chemistry was established in
2005 to coordinate the activities and develop-
ment of few chemical and petrochemical enter-
prises. Currently the group is a leader in soda
ash, PVC and cable compound production. It
controls Bereznikovsky Sodovy Zavod (Berez-
niki, Perm region) and Bashkirian Soda Compa-
ny (Sterlitamak, Republic of Bashkortostan)
which was formed in spring 2013 through the
reorganization of Kaustik and merging it with
Soda. It also owns Transneftekhim logistic com-
pany (Moscow) [19]. The declared motives be-
hind the merge among others included optimiz-
ing product deliveries between holdings enter-
prises, consolidation of financial resources for
developing Karanskoe deposit and getting a
higher credit rating. Preparing the asset for an
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ISSN 1562-109X 123
2014, № 1 (65)
initial public offering (IPO) or sale to a strategic
investor could also be a strategic goal.
From the other hand, the results of Gaz-
proms integration in the chemical and petro-
chemical business are ambiguous. Gazprom is a
Russian gas monopolist that long time ago
crossed the primary processing and export bor-
ders of energy carriers.
Rise in prices for oil and gas, increase in
profits and the desire for wide production diver-
sification towards the products with high added
value resulted in the rapid development of pe-
trolgaschemical holding SIBUR [20]. Since
1998 it was owned by Gazprom and controlled
through affiliates. In 2011 Sibur Limited became
the owner of 100% shares in SIBUR. The ulti-
mate beneficiaries of Sibur Limited are the NO-
VATEKs shareholders and SIBURs top manag-
ers. (By the way, the latter is the largest deal in
the history of Russian chemical industry).
Currently SIBUR manufactures products
on 27 industrial platforms and implements a
business model that focuses on the integrated
work of two main directions – fuel and petro-
chemical. In this case (except commodity sales)
fuel and raw materials are sent to the petrochem-
ical unit for further processing. The built pro-
duction chains are based on high dependence of
chemistry and petrochemistry on raw materials
and energy costs. They provide great synergetic
effects from such integration.
In 2012 SIBURs earned 271.3 billion
rubles (increase of 9.1% compared to 2011),
including 46.6% revenue share from sales of
petrochemical products.
The holding is implementing strategy of
monetizing hydrocarbon materials into deeper
processing products due to progressive deteri-
oration in sale conditions of commodities.
Therefore, over time the proportion of SIBURs
resource direction will decrease in favor of pe-
trochemical direction.
The latter consists of three segments: ba-
sic polymers (total production capacity of the
group by the end of 2012 – 475.0 thousand
tons/year), synthetic rubbers (622.0 thousand
tons/year), plastics and organic synthesis prod-
ucts (975.4 thousand tons / year).
In the basic polymers segment SIBUR is
represented with Tomskneftekhim, NPP Neftek-
himiya (a joint venture established by SIBUR
and Moscow Oil Refinery) and Tobolsk-
Polymer. Also the company is implementing
major building projects: polypropylene produc-
tion complex in Tobolsk (Tyumen Region) and,
in partnership with SolVin, a PVC complex in
Kstovo (Nizhny Novgorod region).
In the plastics and organic synthesis prod-
ucts segment SIBUR produces styrene, polysty-
rene, polymer compounds, ethylbenzene, alco-
hols, ethylene glycol, polyethylene terephtha-
late, geosynthetic materials and caustics. Pro-
duction assets of this segment are represented
with Sibur-Neftekhim, SIBUR-Kstovo, Sibur-
Khimprom, Polyef, Sibur-PETF, Plastic, SIBUR
GEOSINT, BIAXPLEN.
In the synthetic rubbers segment the
group covers the entire technological production
chain of this type of product including the indi-
vidual hydrocarbons separation, monomers and
polymers production.
The manufacture is concentrated at Voro-
nezhsintezkauchuk, Togliattikauchuk, Togliatti-
syntez, Krasnoyarsk Synthetic Rubbers Plant
and the joint (with China Petroleum and Chemi-
cal Corporation) Sibur-Sinopec Rubber Holding
Company Limited. Since 2012 SIBUR imple-
ments an international constructing project in
India. The aim is to build a new complex for
producing butyl rubber with capacity of 100
thousand tons/year in conjunction with the In-
dian Reliance Industries Limited.
Thus, paying a big attention to synergy in
general and its use in organization of SIBURs
integration policy in particular is a key element
of holdings sustainable production and strong
financial performance. However, from a scien-
tific and practical point of view it is also inter-
esting to analyze the opposite examples (e.g. de-
investment with a goal to eliminate negative
synergy) from holdings history.
In mid-2000s the company made a new
step in the diversification strategy and decided
to establish a subsidiary agrochemical holding.
The idea was to utilize Gazproms control over
the natural gas market in order to expand in the
production of nitrogen fertilizers. At that time
such a move seemed completely logical and able
to create the ground for new integration
processes. The prospects for continuing this
agrochemical chain in the context of Russian
agribusiness consolidation around large indus-
trial structures were seen clearly. This direction
allowed to strengthen the development prospects
of internal market and to stably supply domestic
farmers with fertilizers at affordable prices.
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124 ISSN 1562-109X
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In 2006 the mineral fertilizers producing
assets of Gazprom and SIBUR were consolidat-
ed into one subsidiary structure named SIBUR
Fertilizers in order to optimize the management
structure. This company was a major sharehold-
er in Kemerovo Azot and Kemerovo Orton. It
also controlled different stakes in Minudobrenia
(Perm), Cherepovetsky Azot, MINUDOBRE-
NIYA (Rossosh).
The strategic task of SIBUR Fertilizers
was to expand agrochemical assets. This was
primarily achieved through the purchase of con-
trolling stakes in major fertilizer producers.
Therefore, in subsequent years, a number of
manufacturers became acquisition targets for the
new structure.
But now it is obvious that SIBUR Ferti-
lizers failed to become the consolidation center
of agrochemical assets for Gazprom. Hence, sale
of SIBURs assets in the mineral fertilizers busi-
ness at the end of 2011 seemed justified. The
following assets were sold: Minudobrenia
(Perm) to URALCHEM, Kemerovo Azot and
Angarsk Nitrogen Fertilizer Plant (Irkutsk re-
gion) to Siberian Business Union.
The latter is a new player on the Russian
agrochemical market. The synergy that occurs
when chemical assets (primarily, the ammonium
nitrate production) are integrated with the coal
and agricultural enterprises of Siberian Business
Union is the main reason for such purchase.
Another subsidiary of SIBUR called SI-
BUR Russian Tyres repeated SIBUR Fertilizers
fate. Originally this company was established to
centralize sales of its tire companies. But even-
tually it pursued an active consolidation policy
of production assets (Amtel-Vredestein Russian-
Dutch tire holding, Nizhnekamskshina, a joint
venture project with Pirelli and Rostechnologii
State Corporation, etc.) However, in late 2011
SIBUR Russian Tyres (the leading Russian tire
plants – Yaroslavl Tire Plant, Omskshina, Cor-
diant-Vostok, VOLTYRE-PROM) has been sold
to the company's top management and renamed
into CORDIANT.
It can be concluded that the sale of non-
core assets which reduced the overall effective-
ness of the holding by new SIBUR owners was a
preparation for the IPO and a way to obtain fi-
nancial resources for paying the SIBURs pur-
chase debt.
When talking about the overall configura-
tion of the Russian chemical market, it should be
noted that a lot of “independent” chemical com-
panies (besides evolving holdings) which were
controlled by management or regional adminis-
trations worked in the industry in the late 1990s.
However, the activity of large companies in ab-
sorbing independent competitors on this market
significantly increased in the last pre-crisis
years. One of its important directions was the
fight for the agrochemical sector assets. During
2004-2008 this sector showed the growth and
profitability that were not less than in metallurgy
or oil industry. It was considered as one of the
most attractive sectors in terms of private capital
investments.
During crisis period the integration
processes have stalled due to a general fall in the
chemical business profitability and negative ten-
dencies on the capital markets. A number of ma-
jor M&A deals also remained unsealed because
of that. But a new redistribution “wave” came
on the chemical market during post-crisis years
(especially in 2011). The consolidation
processes of Russian chemical assets revived
due to their cheapening and the desire of key
industry players to take advantage of favorable
economic and financial situation for completing
or reformatting their business empires. New cap-
ital entered the industry; new players appeared
(the MINUDOBRENIYA (Rossosh) deal).
It can be expected that trends of existing
holdings diversification, “independent” assets
acquisitions and further consolidation of the in-
dustry will become stronger in the nearest pers-
pective. The sequence of events associated with
the raider attack on TogliattiAzot in 2011 shows
that the fight for influence in the chemical sector
has become tougher and the pressure techniques
now include tools that break the synergetic inte-
ractions.
It is also important to note that Russian
capital is predominantly the financial basis of
these numerous transactions on the merge-
acquisition market. The interest of European
investors in the Russian chemistry exists (for
example, the activities of a large Norwegian
company Yara International ASA) but the role
of foreign capital is still secondary (due to some
limitations of foreign investment into strategic
enterprises and other reasons).
Thus, studying and generalizing the Rus-
sian implementation experience of integration
strategies in the chemical complex and analyz-
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ISSN 1562-109X 125
2014, № 1 (65)
ing their synergetic basis allow making the fol-
lowing conclusions.
The desire to preserve and strengthen the
businesses competitiveness in the unstable mar-
ket environment is the main reason for compa-
nies’ active behavior on the M&A market. As a
result, the largest vertically integrated chemical
holdings are formed. They seek and retrieve the
well-known synergism benefits that are related
with the optimization and unification of business
processes, the production and distribution policy
coordination, the technology and personnel
competence transfer, the neutralization of acute
fluctuations in the energy and chemical products
markets, the competition reduction in domestic
markets and strengthening the competitive posi-
tion on world markets, the resources accumula-
tion, the investment centralization, the manage-
ment and reporting standardization, the optimi-
zation of financial flows based on internal price
and tax regulations, the cost reduction for sign-
ing and executing commercial contracts.
At the same time, the creation and man-
agement of such large integrated structures car-
ries certain risks associated with the revaluation
of positive synergies and increased direct reor-
ganization costs. The latter includes the costs on
acquiring shares, firing personnel, optimizing
production and logistic activities, restructuring
the information and management systems. How-
ever, the possible negative synergies that are
more difficult to estimate can have the same im-
portance for the overall efficiency of the integra-
tion process. This negative synergies may in-
clude management deterioration of the com-
bined structure (and increase in administrative
costs on discussion, coordination and control as
a consequence), low compatibility of infrastruc-
ture and supporting activity, reduced income due
to the difference in quality of assurance and ser-
vice systems, conflicts in corporate cultures, etc.
Most of the industry key players imple-
ment a vertically integrated business model
which allows controlling the entire added value
creation process and ensures stability, flexibility
and profitability of entire business.
The initial chaotic assets gathering
process was gradually replaced with focused
construction of complete interrelated business
segment chains (own resource base, efficient
processing capacities, logistics and distribution
networks). This is the main trend in the current
industrial M&A market. Now, when assessing
the effectiveness of future M&A deals, the stra-
tegic advantage is given to the assets that suc-
cessfully complement existing assets and can
increase the integrated structure value due to
synergetic effect.
Main organizational and management ef-
forts as well as the investment capital are spend
on support and deepening of the unique resource
advantages which create the foundation for Rus-
sian holdings competitiveness. The issues of
productive assets modernization and innovative
development are not a priority. They are mostly
postponed to post-bifurcation industry develop-
ment times.
Current trend aimed at the industry con-
solidation should remain in the nearest perspec-
tive. Russian nonintegrated chemical enterprises
as well as post-Soviet assets (primarily, assets of
Ukrainian and Belarusian companies) will be-
come targets for acquisition strategies.
In these conditions, the development
strategy of key Ukrainian chemical companies
should be directed at forming similar strong na-
tional integrated structures to withstand the
global industry giants. This process is already
underway. But unfortunately the modern scena-
rios of receiving synergism benefits in Ukrai-
nian chemical industry are based on increasing
profitability of separate private business struc-
tures and do not take into account the state inter-
est.
The key players of Russian chemical
market actively started implementing strategic
plans in expanding their presence on interna-
tional markets. This includes acquisition of for-
eign production, transportation and distribution
assets. The main synergy sources in this process
are joining the advanced production and tech-
nological experience (including energy efficien-
cy experience), the business culture develop-
ment, expanding range and geography of sales,
the logistics optimization, overcoming trade bar-
riers, stepping towards promising sales markets
and coming closer to end-customers.
Finally, it is worth noting that the man-
agement of leading Russian holdings under-
stands the essence of synergy, its main sources
and declares the successful use of internal and
external synergy elements in the corporate man-
agement.
Thus, the orientation on the search and
implementation of different long-term synerget-
ic effects is clearly traced in the integration
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126 ISSN 1562-109X
2014, № 1 (65)
strategies of Russian chemical and petrochemi-
cal holdings. This effects form a solid ground
for their sustainable competitive advantages on
both domestic and global markets.
Prospects for further research in this di-
rection are associated with the development of
methodical approaches to analyzing the effec-
tiveness of integration strategies. This will allow
quantitatively evaluating the synergetic effects
in the activities of Ukrainian and Russian chem-
ical holdings and reveal the extent of imple-
menting synergism potential.
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