Russian firm buys a stake in Magna

CANADIAN auto parts supplier Magna International Inc said it had secured a US$1.54 billion investment from a firm controlled by Russian billionaire Oleg Deripaska in a move aimed first at expansion in the fast-growing Russian auto market.

The cash infusion could also help Magna fund a bid to buy struggling US automaker Chrysler Group from its German corporate parent Daimler in ongoing talks in which Magna has been seen by many analysts as the front runner.

Shares of Magna, which also reported a 2.8 rise in first-quarter earnings, jumped almost seven per cent on the Toronto Stock Exchange early Thursday afternoon.

The complicated deal, which must be approved by shareholders and regulators, would give Deripaska and Magna founder Frank Stronach joint control of the diversified auto supplier through a new holding company.

Deripaska also owns Russia's No 2 automaker Gaz, maker of the Volga saloon and the Gazelle minivan.

JP Morgan analyst Himanshu Patel said the proposed structure could allow Stronach and Deripaska to buy Chrysler through the holding company, a move that would keep Magna's parts business separate and minimise the risk to the company's sales to other auto companies. "This deal could provide a creative platform to realise Stronach's interest in Chrysler," Patel said in a note for clients. Magna CEO Don Walker declined to discuss the company's pending bid for Chrysler but said Russia's Gaz could be part of expansion plans that could give Chrysler a low-cost manufacturing base and new sales opportunities.

Stronach has said Magna has a partnership with Canadian buyout firm Onex Corp aimed at buying a stake in DaimlerChrysler's Chrysler division.

Magna said it expect Russian auto production to grow by 50 per cent over the four years ending in 2010 as Gaz and foreign car companies tool up to take advantage of rising incomes and relatively low vehicle ownership rates.

Russia's auto components sector is projected to reach US$30 billion in annual sales by 2010, a spokesman for Deripaska's firm Basic Element said.

Deripaska, 39, was ranked Russia's second-richest man by Forbes magazine, behind Roman Abramovich.

He built much of his estimated US$16.8 billion fortune in aluminum, emerging from Russia's "aluminum wars" of the 1990s with control of some of the country's biggest smelters.

Deripaska also masterminded the consolidation of Russia's aluminum sector, which was completed in March with the creation of United Company RUSAL.

The new company, in which Deripaska is the majority owner, produces one-eighth of the world's supply of the metal.