AT first glance PSA Peugeot Citroen logistics subsidiary, Gefco and Russian Railways (RZD) might seem unlikely bedfellows, but the mooted marriage might not seem quite as bizarre as it initially sounds.
A head of steam is building the train operator is looking to mount an audacious US$1.25bn offer for around 75% of the French logistics company as the railway network in Russia starts to emerge from decades of Soviet-era stock and track to address some very 21st century infrastructure needs.
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The duo seem ripe for each other – RZD operates a vast 85,000km of track – although for such an enormous country this has huge potential for expansion – employs a staggering 1.2m people and carries an equally impressive billion passengers per year.
Gefco owner PSA on the other hand, does not have quite such a rosy outlook and is burning a massive EUR200m hole in its thinning pocket each and every month.
Gefco and RZD won’t confirm to me personally they are both courting, but I did manage to speak to Russian President, Vladimir Putin’s office in Moscow, who said Russian Railways’ CEO, Vladimir Yakunin, had noted he was interested in buying a significant part of the logistics operator.
“Five days ago the president of Russian Railways, Vladimir Yakunin, said to an agency the company is interested in buying Gefco,” the Kremlin told me.
For its part, Russian Railways is reported to be holding a board meeting of its directors soon to potentially discuss the issue, with RZD in the Russian capital cautiously confining itself to noting to me: “”Our president was asked the question about Gefco and he replied.”
The substance of what he replied is still being translated for just-auto and so the dance goes on, but it would appear RZD holds more cards here than its friends in France.
PSA is in a parlous state, faced with huge over-capacity in Europe, plunging sales and posted a Group net result of -EUR819m for the first half of this year.
Just to add to its woes, group overcapacity is becoming worse, with European plants running at 76% utilisation in the first half of 2012, from 86% the previous year. This rate is even lower in the small car segment, which accounts for 42% of PSA sales and where most of the competing models are made in low-cost countries.
Given that catalogue of troubles, a US$1.2bn injection from even as unlikely a source as Russian Railways suddenly starts to look very attractive indeed.
So how is RZD going to find that money? Well, after decades of under-investment and labouring with Soviet-era stock, the rail company is reported to be mulling a London float that would value it at a colossal US$53bn.
And why would investors part with their hard-earned roubles to invest in RZD? Well, the country is ripe for infrastructure development, it has a booming energy sector, it needs goods and services moving vast distances, just ask the many western auto companies who have set up shop there and it has two flagship events in the not-too distant future that will put a forensic spotlight on the country’s ability to cope with mega-transport headaches.
Russia will host the Winter Olympic Games in the Black Sea city of Sochi in 2014 – a distance of 845 miles from Moscow. It currently takes a mind-numbing 26h to complete the journey by train – that’s the ‘fastest’ service by the way – the slowest is 32h – so the need for an – expensive – upgrade is clear.
Gefco could even cite its native France as an example using the fantastic TGV. The equivalent distance from Moscow to Sochi – say Paris to Marseille and back – would take a total of around 6h40min.
Russia also controversially won the right to host the football World Cup in 2018 and despite the concentration of venues in the west of the country the distances will still be vast – the furthest east is Ekaterinburg – and on arrival in Moscow many fans will choose to travel by train.
The urgent need for infrastructure upgrade is clear and pressing and Gefco’s know-how could well kick-start that process, although there have been recent rumours any high-speed rail network could be put on ice.
And Gefco is no stranger to Russia either. It has already plunged into Russian waters with the recent announcement it had signed a major contract with General Motors for logistics in Europe and Russia.
The company inked the seven-year contract with GM to provide for the externalisation of inbound and outbound logistics – excluding the final distribution of spare parts – for the Opel, Vauxhall and Chevrolet brands.
Russian Railways needs Gefco’s expertise and Gefco’s parent could desperately do with that US$1.2bn to plug the dam. An imminent RZD float could see investors giving the rail operator a massive vote of confidence as Russia addresses its huge infrastructure issues and Gefco can supply its know-how.
What’s not to like?
