Corporate takeovers, Russian style, and necessary legal reform

An unprecedented wave of hostile takeovers is sweeping over Russia. Individual industrial companies and holding companies controlling sometimes entire sectors of the national economy are being attacked and taken over. Such transactions amount to second privatization or the re-division of ownership of enterprises formerly privatized. The new wave of transactions is being undertaken in shady transactions by certain oligarchic groups, rather than by the government. Shares in previously privatized companies are seized from their legal owners. On occasion, shares in strategic companies are seized from the government itself, including companies in sectors of the national economy yet to be restructured. The main tool employed in the recent wave of hostile takeovers in Russia is the judicial branch of government, plus "administrative resources." In these transactions, the owners of controlling stakes in many Russian enterprises have discovered that court orders have been issued on a number of alternative grounds summarized below that result in the forced sale of a controlling interest in their companies, together with the loss of all investments made into such companies. A group of specialist consulting firms has emerged that has invented a unique brand of "know-how" in structuring hostile takeover attacks and motivating members of the judiciary and regulatory branches of government to make expedited decisions that are favorable to their clients. These practices have obvious and grave consequences for Russia, making the country far less attractive to Russian and foreign strategic investors, discrediting the legal system, and discrediting market-oriented reforms carried out by President Putin. This article discusses how mergers and acquisitions are intended to be carried out under applicable Russian law, and contrasts these requirements of Russian law with how mergers and acquisitions of major enterprises are more frequently carried out in practice. The article also makes preliminary recommendations for legal reform to address this phenomenon, the organized theft of ownership of Russian corporate entities, and the property belonging to these companies.