Magna International Inc., the Canadian auto-parts maker bidding for Chrysler, has announced that Russian billionaire Oleg Deripaska will buy a stake in the company to help Magna expand in Eastern Europe and Russia. Oleg Deripaska, the Russian oligarch, has purchased a $1.54 billion stake in car-parts maker Magna ahead of the Canadian company’s expected bid for Chrysler. The deal has apparently raised speculations that Magna is generating cash for a bid to acquire Chrysler Group. Russian Machines, owned by Deripaska, would indirectly purchase 20 million Class A Subordinate Voting Shares of Magna. In the mean time, Magna has said that it will use the investment to boost operations in Russia and other markets.
Magna is widely being perceived as a front-runner in the auction to purchase Chrysler, the troubled Detroit manufacturer. DaimlerChrysler is considering selling the North American division after suffering a series of losses, and is expected to seek about $5 billion for the firm. DaimlerChrysler is likely to decide on a preferred bidder for Chrysler next week. Magna has teamed up with Onex, a Toronto-based private equity group. The consortium is competing against two US groups, Blackstone and Cerberus Capital Management. In addition to it, Kirk Kerkorian’s Tracinda has also expressed interest. 
The recently struck deal will provide Russian Machines 18 per cent of Magna’s subordinate voting stock. Russian Machines also holds some interest in the Gaz Group, Russia’s second-largest automotive company. However, Frank Stronach, Magna’s chairman, and his family will preserve domination through multiple voting shares. Analysts have opined that a connection with Gaz might benefit Chrysler increase low-cost manufacturing and distribution in emerging markets, at the same time providing superior quality and technology for Gaz.
However, Magna’s association with Gaz could raise eyebrows as it plans to acquire a household-name US company. Magna declared the partnership with Gaz as a strategy of set off new prospects in Russia and surrounding countries, as well as India, where Deripaska also has business interests. Additionally, Magna has come under intense criticism for its governance practices. Addressing the concern, the firm has said that one advantage of the Russian Machines deal was that outside shareholders would control one-third of the votes, up from one-sixth.
Nevertheless, Oleg Deripaska’s plan to purchase stake in Magna would supply vital cash for any Chrysler bid made by the Canadian auto-parts maker. But the interesting part is the Russian’s past triggers a potential concern for regulators and political leaders who will scrutinize the deal. US law-enforcement officials suspicious of the fact that Deripaska may have connection with Russian organized crime. However, he has constantly refuted involving himself in any criminal activity.
As a matter of fact, if Chrysler works for the Defense Department or has businesses that are considered of national-security interest, the deal could be subject to review by the Committee on Foreign Investment in the US. And the association of Deripaska in a deal for Chrysler could set off apprehensions in Washington, where some high-profile foreign acquisitions have broke down in the past two years on political and security grounds.
