Russian Railways to Acquire Shares in Gefco
In a significant move for the global logistics industry, PSA Peugeot Citroën has entered into exclusive negotiations with Russian Railways (RZD) to sell a majority stake in its logistics provider, Gefco. The proposed sale, subject to antitrust authorities and consultation with Gefco's works council, could secure Gefco's long-term position in the logistics market.
According to reports, the potential new majority owner of Gefco is the Russian sovereign wealth fund RDIF. This partnership aims to strengthen Gefco's position in the Eurasian logistics market and support long-term growth and innovation.
The deal, valued at €800m ($1.03 billion), includes a 75% interest in Gefco. The provider will officially take over as the exclusive fourth-party logistics provider for General Motors in Europe and Russia in January, following a period of exclusivity in its contract.
However, the pricing terms of such contracts, particularly with PSA, could be a point of contention in the future. In its first half financial report, the OEM attributed a decline in Gefco's profit margin to "renewed pricing clauses" in Gefco's contract with PSA in 2012.
Despite this potential contention, Luc Nadal, president of Gefco, remains optimistic about the deal. At a press conference, he stated that Gefco would work well under a foreign logistics provider. The management of Gefco will not change, with Luc Nadal continuing to serve as president, and the provider will remain headquartered in France.
Gefco's complementary network, assets, and ambitions with RZD seek to expand its total offering in Russia, Central Asia, and the Far East. The provider uses Transcontainer, a subsidiary of RZD, to move freight from Asia on the Trans-Siberian railway for Peugeot production in Kaluga.
RZD, which already has controlling stakes in the intermodal provider Transcontainer and the finished vehicle rail provider RailTransAuto, aims to increase cargo turnover by 28% in both domestic and international markets by 2015 compared to 2009.
Plans are being made to sell a minority stake in Russian Railways in a potential London initial public offer in 2015 or 2016. The new shareholder of Gefco will have to contend with any future changes to Gefco's arrangements with PSA and GM.
A shareholders agreement will "ensure the protection of both parties' interests as well as the sustained quality of the logistics services provided by Gefco to the PSA Group". The agreement is expected to accelerate development for Gefco not only in Russia, but also in Asia, Eastern and Central Europe.
Vitaly Belskiy, a consultant at Frost and Sullivan, views the deal as a "win-win" for both RZD and PSA. While the long-term win for RZD is more significant than the equity gain for PSA, Belskiy believes that the deal will benefit both parties. The purchase of Gefco by RZD is considered a potential "one-time opportunity" for RZD, which should secure the company's long-term position in the logistics market.
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