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About Kalashnikov Manufacturer Going Private

Posted on 12 Dec 2017
About Kalashnikov Manufacturer Going Private

AK-47 Kalashnikov Manufacturer Goes Private After Russian Government Gets Rid Of Its Stake

The manufacturer's products are used all over the world every day. It is one of the most recognizable brands in Russia.  In recent years the AK 47 company, Kalashnikov, has remade its image and streamlined and diversified its operations. 

Currently, Kalashnikov Kontsern, the Russian gun maker, is going through a corporate shake-up.  According to Russian media reports and official statements, the company is going to be sold. It will be effectively privatized, and reportedly will be left with just one investor, Aleksei Krivoruchko, having a controlling stake.  

This sale is the company's latest transformation. It has been manufacturing Kalashnikov-pattern rifles, which are known by their popular name of AK-47s, and used by militant groups and militaries all over the world. 

Operating out of a city to the east of Moscow, Kalashnikov Kontsern is the capitalist descendant of the Soviet state-owned organization that initially stamped AK-47s out following World War II.  This weapon was extensively copied across the Eastern Bloc as well as other parts of the world.  Today there are around 100 million of these guns in use.  

The Russian Army is still supplied by the company, but it has moved on to new ways of making money as well, such as selling its rifles to civilians, making drones and speedboats, and charging video game companies royalties when its trademark is displayed.


Kalashnikov Kontsern in this way has exemplified a broader strategy within the Russian defense industry with Vladimir V Putin as President of Russia. 

Rostec, which is a state holding company that was formed early in the tenure of Mr. PUtin, has been attempting to make improvements to the corporate governance in defense factories, along with diversifying product lines, where possible, with a goal of selling shares off to private investors.  In 2013, as part of a partial privatization, Rostec sold right under 50 percent of its Kalashnikov holdings. 

Following the sale, the majority stake of Kalashnikov was still held by Rostec, with Mr. Krivoruchko holding around 25 percent of the company, and the remainder being held by two other investors, Iskander Makhmudov and Andrei Bokarev.

The company's ownership will be reshuffled by two recent sales, with a majority share going into private hands.

The holding company's director Sergei V. Chemezov announced that Rostec had received approval from the government to sell off a 26 percent stake of its Kalashnikov holdings.  Hia remarks came while he was in Dubai to attend an air show. 

In February, the idea of privatization was first floated by Rostec.  At that time, it was stated in a press release by Kalashnikov that a Russian industrialist by the name of Mr. Krivoruchko was interested in being a buyer.  Some of the other investments held by Mr. Krivoruchko include shares in Moscow suburban commuter trains. 

Mr. Chemezov stated that they had just made the final decision to sell a 25 percent stakes minus one share.  These comments were published by the Russian military news website Zvezda.  The buyer was not specified in those comments. 

On Friday the Kommersant newspaper reports that Mr. Makhmudov and Mr. Bokarev had announced they would be selling their stakes to Krivoruchko.  

The two sales combined will give control of Kalashnikov to Mr. Krivoruchko. He will have an approximate 75 stake. 

According to Rostec executives, Kalashnikov is a profitable enterprise and ready to be privatized.  The gun maker last year reported 18.3 billion rubles in sales, or at the current exchange rates, $308 million, with a 3 billion rubles profit ($51 million). 

Prior to the Ukraine crisis, which led to American sanctions being imposed, Kalashnikov had been selling large amounts of civilian rifles within the United States under the Saiga and Baikal brands. The U.S. is the biggest civilian firearms market in the world, and prior to the sanctions being imposed Kalashnikov was selling more of its riles to the U.S. civilian market than it was to the Russian military. 

Since then, the company has been attempting to sell its guns elsewhere in order to compensate for its lost business. Kalashnikov last month signed a licensing agreement with Saudi Arabia for producing the AK-103, which is a variation of the rifle.  The company has also encouraged broader civilian gun ownership within Russia.  Following the imposition of American sanctions, a new logo was created by the company, along with a new branded clothing line and advertising that targeted Russian buyers.

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