In the case study of Gazprom and Itera, we see how different companies and governmental organizations can potentially be able to exploit a large company such as Gazprom for a large profit. Gazprom is a large gas and oil company that is valued very cheaply compared to other large oil and gas companies (such as Exxon Mobil). Browder is a shareholder of Gazprom that identifies several questionable transactions that were done by Gazprom and other organizations that have relationships with Gazprom. He is questioning why the undervaluation could have occurred based on the business being conducted by the oil giant.
The problem that exists for Gazprom is that the market perceives the company to have lost 99 percent of its assets, completely devaluing the price of its goods. In reality, only 10 percent of its assets were stolen, and the market is slowly trying to catch up to that truth. Browder is attempting to identify the transactions in order to solve the large problem at hand. These transactions include organizations that work with Gazprom such as Itera (a gas trading company) and PricewaterhouseCoopers (their internal auditor) devaluing the gas and oil Gazprom held in certain situations and reselling it for a profit. In one example, Itera bought gas valued at $35 a barrel from Turkmen gas and resold it to Gazprom for $45 a barrel. PwC thought this difference was acceptable due to transportation costs, even though those were already taken care of separately. In general, the lack of transparency and accountability being administered by management in Gazprom and its partner companies was a failure to its stockholders.
Browder’s recommendations to the Russian government are vital, mainly due to the fact that it has a 38% controlling stake in Gazprom. Because the vast majority of the operations conducted by Gazprom occur within Russia’s boundaries, it is up to the government to set the correct standards and close loopholes so that organizations and individuals will not exploit such situations. Browder’s recommendations to the U.S. and to the Board of Directors of Gazprom could be essential for enacting change within the corporate environment to prevent such scrupulous transactions. Though these changes could prove helpful in the reorganization of the company in the long run, the international political environment does not provide Gazprom with the best situation. The fact that Russia’s governmental body has so much stake in the company can greatly complicate things due to the personal influence of those running the government.
Several members of the Russian government could fulfill a personal agenda using the government’s stake in the company as leverage (this could have been the case potentially with these transactions). This is also the case with PwC and Itera, both with a lot of power to take advantage of loopholes and other lucrative situations when it comes to Gazprom. There are several things Browder can do to combat this situation, but I think his strategy will be a difficult one to execute alone. He would need to collect more shareholder power before he steps forward with the resolutions. Involving the U.S. and Russian government will be difficult due to the lethargic manner in which these situations can be resolved. Taking care of the company from within should be he first move, but only with the appropriate number of people backing his plan.
Courtney from Study Moose
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