Red October resists raider's bid

Red October yesterday broke a week of silent running, and surfaced to confront the Russian enemy. Mikhail Chebotaryov, captain of Red October, said he was not prepared to surrender.

He fired several warning shots across the bows of Koloss, the Moscow- based food producer trying to buy a controlling 51 per cent interest in his chocolate factory in the country's first aggressive takeover bid.

"We will undertake all measures to defend shareholders' rights and jobs," Mr Chebotaryov warned yesterday. Red October has a crew of 3,100.

He added that the bid from Koloss, which was raised on Tuesday, did not reflect the actual worth of a controlling interest in Red October, known as Krasny Oktyabr at its base opposite the Kremlin.

"Red October is one of the most promising firms in its sector, and its leadership has a precise programme of development," he said. The bid values the whole company, best known for its Bears in the Wood chocolate brand, at $60m.

That sum was at least $40m less than the company was worth, added Oleg Tsarkov, a director of the Grant Financial Centre, which is advising Red October on its defensive tactics.

"There are real market prices and then there are a mass of ways of valuing an enterprise," Mr Tsarkov said. Shareholders in Red October were advised to take no action. Only one owner of three out of the company's total 6.6 million shares in issue has so far jumped ship.

Koloss said it would push ahead but would not raise terms before the current offer expires on Tuesday. "This rejection was an option we considered," said Yuri Milner, chief executive of Alliance-Menatep, the investment affiliate of Bank Menatep. Alliance-Menatep is one of Russia's biggest banks and 57 per cent owner of Koloss.

He added he would soon contact shareholders not previously approached, including CS First Boston and Pervy Vaucherny Fond, to try to secure commitments to sell.

He strongly countered accusations that Koloss did not have the funds to pay for the bid. "I have a Menatep bank letter of guarantee. If that's not enough, I don't know what is."

Koloss is widely thought to be acting as a cover for a Western company keen to break into the chocolate market in Russia. Red October produces more than 60,000 tons of chocolate sweets and drinks every year.

Red October is also trying to enlist help from government forces. Mr Chebotaryov has written to the Anti-Monopoly Committee and Federal Securities Commission asking the two authorities to examine the legality of takeover activity in Russia.

There are no strict takeover codes in Russia, mainly because all corporate deals since the downfall of Communism have been friendly. The financial community expects this bid to set precedents for future takeovers.

Red October is profitable despite the need to raise prices every two weeks because of Russia's spiralling inflation, and despite the antiquated machinery at its plant.

Sales totalled $40m last year, from which the company managed to make profits before tax of $10m. This was although some of its fixed costs, particularly wages, are high.