In Russia, hostile takeover takes on a new meaning

Vodka is often blamed for Russia's muddles. But now confusion is engulfing the vodka industry as armed groups vie for control of the country's most prestigious distillery in what may be a state-sponsored management coup.

The battle for the Kristall factory, which churns out more than 18 million gallons of vodka annually, was joined on Friday after armed tax police swooped in and seized documents related to long-standing charges of tax evasion and fraud by the company's management.

As if on cue, Kristall's recently appointed, then removed, director, Alexander Romanov, showed up with 20 machine-gun-toting guards and occupied the offices in the wake of the departing officers. Mr. Romanov said he was acting "to defend the interests of the state," which owns 51 percent of Kristall. The next day another group of armed men occupied the factory, a rambling group of red-brick buildings located in eastern Moscow. They were led by Vladimir Svirsky, who claims to be the legitimate director. Last month, a Moscow court overturned Romanov's May appointment to the post, and named Mr. Svirsky as pro tem head of the plant.

"All I can tell you is that there are armed men everywhere, and no one can get any work done," says Natalya Iskulova, head of Kristall's legal department. "One group occupies the factory, the other is barricaded in the offices. Everyone's afraid real fighting will break out any moment."

Welcome to Russia, where it is not unusual for hostile corporate takeovers to be accompanied by gunfire. But this time it may not be just the usual gangs of violence-prone biznesmeny vying for control. The turmoil at Kristall - where the Stolichnaya brand, a popular export, is produced - began earlier this year when President Vladimir Putin announced the creation of a Kremlin-run alcohol conglomerate, Rosspirtprom, to maximize state revenues from the profitable vodka industry. Within weeks, Kristall's management was under fire from the tax police for alleged tax evasion, and in May the government - Kristall's majority shareholder - rammed through the appointment of Romanov as director.

Battle with the bottle

Long before Russia had communism, there was a state vodka monopoly, which served as an additional - and easily gathered - tax on the country's notoriously hard-drinking population. According to the independent Center for Alcohol Policy in Moscow, the average Russian man drinks more than 23 gallons of vodka annually, one of the world's highest levels of alcohol consumption. This in turn is considered a main reason why the life expectancy for Russian men, at 58 years, is one of the lowest in the world.

Experts say the goal behind Rosspirtprom is to restore the centuries-old state system of control over this lucrative industry, as well as eliminating the deadly anarchy that has reigned in Russia's hard-liquor market since the collapse of the Soviet Union.

Today, a bewildering variety of alcoholic drinks are available, often at open kiosks, in every Russian city. A 1998 study found that more than 50 percent of vodka traded in Moscow was of substandard quality, some of it lethal methyl spirits. Russia's Ministry of Health says that about 40,000 people die annually from drinking toxic spirits, about five times the Soviet-era rate.

"The vodka monopoly was traditionally a huge source of income for both Czarist and Communist Russian governments," says Alexander Matveyev, an analyst with the Russian Economic Barometer, an independent financial consulting service in Moscow. "Under Putin, the Kremlin has been moving to reassert influence in many sectors of the economy, and the liquor industry is an obvious target."

In recent months, Russian security forces have raided offices of some of Russia's top media, automotive, financial, and petroleum companies. In at least two cases, charges were suddenly and mysteriously withdrawn after what analysts say were probable back-room deals between the companies and state.

Kremlin's strong hand

"Putin's goal is to put an end to the lackadaisical style of the [previous] Boris Yeltsin era, when businessmen were allowed to do pretty much whatever they liked," says Andrei Ryabov, an expert with the Carnegie Endowment in Moscow. "He is not out to crush them, but he does intend to exert very strong Kremlin influence over their affairs in future. Once the businessmen accept that, the pressure lets up."

The election of Romanov as director of Kristall, confirmed by the board in June, put an end to a series of raids by tax police. Unlike his predecessor, Romanov seemed willing to bring the company under the wing of the new Rosspirtprom bureaucracy. But after a Moscow arbitration court ruled last week that the move was illegal, the stage was set for the armed confrontation.

"There's no denying that the alcohol industry needs to be cleaned up" says Mr. Matveyev. "Still, I cannot say I like the methods the state is using.... If this goes on, business will lose confidence and the economy will become unhinged. This does not look like the rule of law Putin promised at all."

(c) Copyright 2000. The Christian Science Publishing Society