Koloss sweetens Russian chocolate offer

JOHN SHEPHERD

The hunt for Red October has intensified. Koloss, the Russian food company, yesterday increased its takeover terms for Red October, a chocolate producer opposite the Kremlin, by $2 to $9.50 a share.

Directors of Red October, however, are maintaining silent running, refusing to surface and tackle Koloss's manoeuvres head-on. The increased offer comes only a week after Koloss launched Russia's first aggressive takeover bid.

Yuri Milner, chief executive of Alliance-Menatep, adviser to Koloss, said the bid had been increased after meetings with several large Red October shareholders who said the original terms were too low and did not reflect the company's worth.

He added that fresh information on Red October's financial position had been received which justified raising the bid. He declined to give further details.

Moscow representatives of Grant Financial Group, financial adviser to Red October, declined to discuss the bid, adding that the company was also not yet prepared to make a formal response.

Neutral observers of the bid in Moscow were surprised that Koloss had raised the stakes so quickly, even though the first sweep to net Red October's owners at $7.50 had apparently flushed out a white flag from only a single holder of three shares.

There are more than 6 million Red October shares in issue, and the increased bid values the company at $60m. This value is 1.5 times Red October's turnover in 1994, and six times the size of the profits it made from producing 60,000 tons of chocolate.

Red October's chocolate has been described by one recent visitor to the factory on the banks of the river Moscow as "sickly sweet, but very popular with children". One of the biggest selling brands is called Bears in the Wood.

Suspicions among financiers in Moscow that Koloss is acting as cover for a Western company remain. Most of the speculation about a Western bidder points to Nestle, the Swiss group which has already moved into the Russian market through a joint venture.

The bid is being watched closely by merchant bankers, mainly because there are no clearly defined takeover rules in existence.

"I think this bid will be influential in Russian corporate activity," a banker said in Moscow. "It is an unusual way of doing business in Russia. Deals are normally made by running about behind the scenes rather than being open."

It is believed that Nestle tried to acquire Red October last year, but was rebuffed by management, which wants to retain the company's independence even though the financial odds are stacked against it.

Red October's factory is antiquated, and a move to modern, purpose-built premises on the edge of the city was hampered by the failure of an international share offer just before last Christmas.