296084 PDF ENG

Topics: Stock market, Stock, Russia Pages: 60 (6963 words) Published: December 9, 2014
For the exclusive use of A. Neesham, 2014.
Harvard Business School

Rev. July 12, 1997

The Hostile Bid for Red October
For Yuri Yegorov, Chief Financial Officer of the Red October Candy Factory, July 11, 1995 began just like any other day—with a glass of tea and the morning Commersant Daily. He paid no attention to the warm, rich smell of chocolate that permeated the factory’s nineteenth-century, wood paneled offices—thirteen years at the factory had rendered him unable to taste even the bittersweet delicacy that was Red October’s main product. Yegorov’s routine was abruptly broken by an item in his newspaper: a public “Offer to Purchase for Cash” 51% of Red October’s outstanding common stock (see Exhibit 1). Although the offer was unprecedented in Russia, Yegorov immediately realized what had happened. Red October had become a takeover target. Yegorov understood the basic idea of hostile takeovers, but was unsure of his next steps. The price offered, $7.50 per share, was significantly above the current price of $5.50. Koloss, Red October’s would-be acquirer, was controlled by Menatep Bank, one of the most powerful and well connected financial institutions in the country. Yegorov knew that a change in ownership could mean significant changes in strategy—and possibly management. The very style of the offer made him uncomfortable. If Menatep had been interested in buying Red October, why hadn’t they approached management directly instead of launching this public attack? In any case, the hostile offer had been made. Yegorov reflected on the irony of the situation. Just eight months earlier, Red October had volunteered to be the first Russian company to publicly issue shares according to Western standards. Now, it was again going to serve as a model of financial innovation in the newly created Russian capital markets. He thought wryly of the old Russian proverb that states “if you live with wolves, you will start to howl like one.” Getting the order backward, Red October had first learned to howl, and now the wolves were coming. Normally, Yegorov would have met with Anatoli Daursky, Red October’s President and CEO, but Daursky was abroad on vacation. In his absence, Yegorov knew that the decisions he made over the next few days could determine Red October’s future. He reached for the telephone and called his investment banker, Oleg Tsarkov, at Grant Financial Group.

Alan Bigman MBA 1996 prepared this case under the supervision of Professor Benjamin C. Esty as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1996 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only by Alexander Neesham in Corporate Finance Ii taught by George Pinteris, at The Ohio State University from October 2014 to December 2014.

For the exclusive use of A. Neesham, 2014.

The Hostile Bid for Red October

The Russian Economy
Russia’s economy in the mid-1990s was perhaps best summed up by the economist Grigory Yavlinskii. When asked whether Russia could ever hope to have a functioning market economy, he quipped “Why not? We already have a malfunctioning market economy.” Indeed, the convoluted history of Russia’s development had left a very mixed legacy.

The Communist Experiment
In the late 19th century, Russia embarked on a period of industrialization similar to that experienced in Germany and the United States fifty years earlier. By 1917, however, the dislocations of war combined with an...
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