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THE INVISIBLE MAN BUT FOR THE CAR, IT MIGHT BE
Michael Posner
Globe and Mail
Tuesday, Mar. 17, 2009 03:19PM EDT
He has all the requisite toys of a tycoon--private jet, Benetti yacht,
11-bathroom mansion--but until a few months ago, no one had ever heard
of Alex Shnaider. How a kid who once stocked shelves in his parents'
deli grew up to become the billionaire next door But for the car,
it might beany major corporate office in Canada. A tasteful lobby
panelled in cherrywood. A tag team of stylish receptionists camped
beneath an oversized logo. A mammoth conference table surrounded
by comfortable leather chairs, the credenza stocked with bottles of
Italian sparkling water, the walls draped with expensive art. But as
of last month, only one Canadian corporate headquarters could boast
the car--a $450,000 (all currency in U.S. dollars) silver Mercedes SLR
McLaren, sleek as a missile. Parked conspicuously outside the front
door, an employee lovingly wiping away evidence of dust, the car is
the property of Canada's newest and certainly least-known billionaire,
36-year-old Alex Shnaider, chairman of Guernsey-based Midland Group.
For almost a decade, the Russian-born, Canadian-raised Shnaider
has quietly leveraged erstwhile state assets in the republics and
satellites of the former Soviet Union into a booming industrial
conglomerate: 34 offices scattered around the world, 50,000 employees,
2004 earnings of more than $2 billion, interests in metals, shipping,
agriculture, land development, warehousing and infrastructure.
Today, Shnaider resides comfortably in the rarefied realm of moguldom
and has the accoutrements to prove it: a fleet of luxury cars, his
own Bombardier jet, a 172-foot Benetti yacht (with a crew of 12)
registered in the Cayman Islands. Indeed, his investments were
lucrative enough to land both him and his London-based partner,
Eduard Shifrin, on Forbes's list of billionaires released in March,
albeit with relatively lowly rankings of 488 and 507, respectively.
As he amassed this wealth, Shnaider has remained virtually
invisible in his home country, unknown to Bay Street's bankers and
brokers. Geographically and psychologically, he occupies a space apart:
His executive offices are tucked far away from the hurly-burly of the
financial district, in an industrial plaza on the northern margins of
Toronto, next door to a fitness club and an Italian clothing emporium.
Shnaider, however, has stepped decisively from the shadows with
two bold, high-profile moves in the past year--a majority stake
in Toronto's controversial 70-storey Trump Tower, a combination
five-star hotel and luxury condo development that aims to be the
tallest residential building in Canada; and the $50-million purchase
of Eddie Jordan's struggling Formula One motor-racing franchise.
Despite a braying chorus of skeptics, Shnaider is bullish on
both ventures. "I'm always optimistic," he explained one recent
afternoon, nattily turned out in a bespoke Italian suit. He was
seated in the Midland boardroom, decorated with the vivid canvases
of Russian-Canadian painter Alexander Donskoi. Shnaider is entirely
comfortable in English, but speaks quietly, with a distinctive Russian
accent: "You cannot not be optimistic if you're in business." Besides,
relative to other major world cities, he argues, real estate in
downtown Toronto is undervalued, and there is a clear vacuum in the
marketplace when it comes to luxury--the residences will boast 11-foot
ceilings, floor-to-ceiling windows and private elevator access. Some
30% of the Trump suites (prices range from $1.6 million to $15 million)
have been sold, a third to Canadians, and Shnaider expects to start
construction by the spring of next year.
As for Formula One, he's convinced the Jordan franchise, to be renamed
at the end of the 2005 season, will open doors and promote the Midland
brand. "Already I see opportunities because of our association with
the team." Shnaider's deliberate emergence from the dim recesses of
Eastern Europe's business world--appearances at a press conference with
Donald Trump Jr. last fall in Toronto, and with the F1 team in February
in Moscow's Red Square--only serves to raise the larger questions:
Who is Alex Shnaider anyway? And how, from a virtual standing start,
did he manage to amass $1.4 billion in less than a decade?
Not all of this is easy to answer.
bathurst and Steeles, the commercial heart of several sprawling
suburban subdivisions north of downtown Toronto, is a conglomeration of
townhouse developments, low-rent apartment blocks and strip malls. An
ethnic melting pot of Russians, Israelis, Polish Holocaust survivors
and Orthodox Jews, it is, in the words of writer David Bezmozgis (one
of its alumni), "a tenement delirious with striving." The Shnaiders
arrived in the neighbourhood (by way of Israel) when Alex was 13,
part of the epic tide of Jewish emigration that has washed out of
the Soviet Union over the past four decades. It was 1982, and North
America was gripped by a fierce recession. Unable to find work in their
respective professions--Dad was an engineer and computer programmer,
Mom a dentist--his parents bought a local delicatessen, Russian Caviar.
Young Alex was at once industrious and entrepreneurial; he worked
evenings, weekends and holidays in the store and delivered the Toronto
Star. Danny Tilis, a Midland vice-president who went to high school
with Shnaider--one of a number of longtime friends Shnaider has
placed in the company's executive suite--says that his gifts were
evident even then. "He was always sharp, very astute. He had a good
mind for figures and could quickly evaluate situations. You weren't
ever going to put one over on Alex."
Shnaider says he was never interested in any vocation other than
business. After graduating from William Lyon Mackenzie Collegiate,
he enrolled in economics at York University in 1987. "I studied
every day and got very good results, but by the second year, got
really bored. I felt it was too easy. I thought, 'Why am I studying
economics when things are happening in the world?' I felt I was wasting
time." Against his parents' advice, he left school and spent a year
buying and selling cars--an appetite that has only grown through the
years. In addition to the Mercedes SLR, he now owns a Bentley Arnage
and a 1955 Mercedes 300SL Gullwing, housed in the garage of his
six-bedroom, 11-bathroom home in North York, shared with his wife,
Simona, and their three daughters. When it came to cars, recalls
Nathan Jacobson, a Canadian with business interests in the former
Soviet Union and Israel who has known Shnaider for almost 16 years,
"It didn't matter what I was driving, Alex was always in something
better. I show up in a Mercedes 500; he'd be in a Mercedes 600. I
take my Jag E-Type; he'd have a Ferrari."
Shnaider eventually returned to school, graduating in 1991. While he
was completing his course load, he had started working for his future
father-in-law, the controversial Boris Birshtein, who owned Seabeco
Group, an international trading company. The two had met through
family connections. For Shnaider, Birshtein was very much a mixed
blessing. On the one hand, he often found himself in disagreement
with Birshtein's business philosophies. On the other, Birshtein
introduced him to the world of steel trading, which would become the
foundation of his fortune. "Boris had very good people working for
him," Shnaider says, "who were able to open doors." Indeed, Birshtein,
an emigre from Lithuania, had forged close connections with powerful
figures in the Kremlin, Moldova, Kyrgyzstan and Ukraine. But for
every friend he made, he also seemed to make an enemy, and in the
early 1990s, trouble haunted Birshtein like a bad headache. He was
implicated in a political scandal in Ukraine, when Alexander Volkov,
a close adviser of then-president Leonid Kuchma, was found to have
foreign bank accounts totalling $15 million; some $5 million of that
was alleged to have come from Seabeco or its associates. Everywhere
Seabeco did business, similar allegations of impropriety followed.
Prior to the Volkov affair, Shnaider worked as a project manager in
Seabeco's Zurich offices, but there is no suggestion that Shnaider
was ever tainted by any of the allegations surrounding Birshtein's
business dealings. Initially, he sold consumer goods--furniture,
televisions, computers, VCRs--to government-owned agencies or mills;
rather than cash payments, the company received finished steel, marked
it up and sold it to specialty trading firms. "That's basically how
I started," says Shnaider, "as a middleman."
It was his first trip with Birshtein--to Moscow and Kazakhstan in
1990--that proved decisive. He knew then that this was where he wanted
to do business. "Prices were so low," Shnaider recalls. "Everything was
primitive. They had the raw materials, but they had no technology,
and you had the feeling they didn't have a clue what they were
doing. There were so many opportunities because it was so backward."
In the early 1990s, unmoored from Moscow's mother ship, scores of
industries in the former Soviet republics were denationalized and sold
off, often at staggering discounts to their real asset values, and
oftentimes to well-connected politicians and bureaucrats. Corruption
was rife.
Shnaider, however, had missed this early wave of privatization in
Russia because he was too busy buying and selling Ukrainian steel. By
1993, he had left Seabeco and, with another trader, a Belgian by
the name of Lazar Fruchter, had started an independent operation
based in Antwerp. Shnaider says the partnership ended amicably,
although Fruchter says it effectively died when Shnaider announced
one day that their 50/50 arrangement was no longer sufficient:
Shnaider felt he was contributing more to the business and, thus,
wanted a more favourable equation. Fruchter, now living in Israel,
declined to elaborate, saying he has not done business with Shnaider
in eight years, though the two men still stay in touch.
On his frequent trips to Eastern Europe, Shnaider kept bumping into
Eduard Shifrin, a Ukrainian national who was running the Kiev-based
office of a Hong Kong trading firm. "He had a PhD in metallurgical
engineering, and he was quite astute," Shnaider recalls. "He knew
steel. He knew people. He had a very good reputation." One evening,
while sharing a cab after a dinner meeting in London, Shnaider made a
modest proposal, one he'd been thinking about for some time. "Eduard,
you're working for a salary," he recalls telling Shifrin. "Come and
join me. You'll be a partner. I'll fund it." Shifrin, then 34, took
a few months to consider the offer, before finally accepting.
Midland was set up in 1994, with the holding company, Midland
Resources, domiciled in the Channel Island of Guernsey, a British tax
haven. Shnaider and Shifrin had one advantage over the apostles of
capitalism sent by other Western businesses to the former republics of
the Soviet Union--they spoke Russian. "Language helped me understand
the mentality and what was really going on," says Shnaider. "We were
able to make decisions that others might not make. Take bigger risks."
Worried, for example, that mills might default on production
guarantees, some traders refused to pay for steel until it was safely
in port or actually loaded on a ship. Midland agreed to pay for the
finished product while it was still in the blast furnaces--a game of
one-upmanship that made it a favoured client. When competitors cottoned
on and copied its methods, Midland went even further--buying the coal
needed to make the steel, delivering it to the factory and taking the
steel as payment. "We understood the people and we had the [financing]
infrastructure," he says. "It gave us an edge." Another early move also
paid significant dividends--the purchase of a Siberian factory that
made fireproof bricks for steel mills, and the magnesite mine to supply
it. The quality was so high, says Shnaider, that it was like owning a
monopoly. And it gave Midland access to a broader range of steel mills.
Midland's principal source of steel was Zaporozhstal Iron and Steel
Works, now Ukraine's fourth-largest producer and the 55th largest
in the world. But when the country began its privatization frenzy in
the late 1990s, Shnaider quickly recognized the stakes. "We needed to
buy something because it was clear everything was going to be sold,"
he says. "We'd been working with this mill for many years, so we
started acquiring shares and options [at government auctions]. It
wasn't easy. Other companies also wanted to buy them," including a
group led by the influential Ukrainian parliamentary deputy Vasily
Khmelnytsky. "But we understood that if we didn't buy these shares,
our business was going to end."
By 2001, using a couple of British subsidiaries, Shnaider and
Shifrin had managed to win majority control of Zaporozhstal, but
the government still retained a 25% stake, a potentially troublesome
voting bloc. According to published reports, Shnaider threatened to
raise more money in the capital markets, effectively diluting the
government's stake, unless the remaining quarter was auctioned. The
government not only acquiesced, it struck terms highly favourable to
Midland--the winning buyer had to have delivered 700,000 tonnes of
iron ore or 400 tonnes of scrap metal to Zaporozhstal within the past
year, a condition that effectively eliminated most competitors. These
included Tekt, a Kiev-based investment bank, which sued the government
to abort the auction, claiming it would pay $37 million, almost three
times as much as Midland. Both this action and the subsequent appeal
were thrown out. In total, Shnaider acquired 93% of Zaporozhstal,
at a cost of about $70 million; the remaining float of 7% trades
publicly. He is said to have recently turned down offers to sell the
mill for $1.2 billion.
Steel is a cyclical industry. Its prices rise and fall subject to the
global vicissitudes of supply and demand. In acquiring Zaporozhstal,
Midland's timing was near perfect--steel prices were on a tear, fuelled
by China's seemingly inexhaustible appetite for the commodity. Shnaider
has used Zaporozhstal's profits (in 2004, it earned $129 million on
$1.3 billion in sales) to leverage a string of Ukrainian acquisitions:
a pipe mill, a coking plant, two factories and 35% of an iron-ore mine.
In the past few years, he's gone further afield, diversifying
Midland's assets by buying up businesses in the former Soviet Union
and its satellite states. There's another major steel plant (the
Red October Works) in Volgograd. There's a controlling interest
in Gumaplast, a Serbian maker of rubber and plastic seals for the
auto industry. There's a Midland shipping division, with a fleet
of 18 merchant vessels carrying freight around the Black Sea and
the Mediterranean. There's control of Carnex (Serbia's largest meat
packer), a controlling interest in UP Stari Grad (it owns two hotels,
several restaurants and cafes in central Belgrade), a majority stake
in the strategically located Danube port of Pancevo. And there's a
growing portfolio in Moscow, including the Arbat Business Centre,
a new condo conversion, and a contract good until 2019 to collect
municipal waste and sell advertising on the containers.
Three years ago, Shnaider made a relatively small wager on Armenia,
spending $37 million to buy the national power grid, a then-bankrupt
electricity distributor. Only a small percentage of the power company's
bills at the time were actually being collected. Midland won approval
to cut electricity to anyone who defaulted on their bills, including
municipalities. The tactic got consumers' attention. "Now," Shnaider
says, "we collect 96% to 98%." The utility further boosted margins
by cutting down on power losses based on theft. "We streamlined
management, increased salaries to inspectors by seven to 10 times to
discourage bribery and gave each regional manager targets to meet. If
they weren't met, he'd be fired. But if he met them, he was rewarded
by much more than his salary." The turnaround complete--the company
made $20 million last year--the utility, like several other Midland
acquisitions bought cheap and revived, has recently been put up for
sale. Asking price: $100 million.
His business acumen notwithstanding, some people will inevitably
wonder how it's possible for a 36-year-old, in a single decade, to
make more than a billion dollars in the former Soviet Union, a world
not easily navigated. The reality, Shnaider insists, is prosaic. On
the Forbes list of billionaires are several Russians who "were much
more successful than me in different industries, because they were
at the right place at the right time"--poised to scoop up privatized
enterprises just as they became available. Similarly, he points out,
there are dozens of internet billionaires around, many of whom made
their fortunes before turning 30. The species is no longer rare.
And if it's true that Boris Birshtein occasionally broke bread with
businessmen and politicians of questionable integrity, Shnaider
has long since distanced himself from his father-in-law. The two
had a serious falling-out in the mid-1990s, and today don't even
speak. Shnaider declined to divulge details, but says that "due to
unfortunate and irreconcilable differences relating to business
policy and family matters, I have not had any contact with my
father-in-law for more than four years." And he adds: "Conflicting
business philosophies brought our professional relationship to an end
more than 10 years ago." Now resident in Toronto, Birshtein declined
to be interviewed for this article.
Val Levitan, CEO of Talon International Development Inc. and Shnaider's
business partner in the Trump Tower, says Shnaider has never mentioned
the tiff with Birshtein. "You have to understand Alex. He does not
discuss things--period. He does not like to gossip." Separated by a
generation, Levitan characterizes Shnaider and Birshtein as emissaries
from two different worlds. "Alex is a North American businessman. Boris
is the old school. But there is a big market in the former Soviet
Union for integrity. You can make a lot of money with integrity,
because it's scarce." The Forbes magazine profile of Shnaider that
accompanied his initiation into the billionaires' club alluded to the
"murky" climate of business in the former Soviet Union. In rebuttal,
Shnaider wrote to the editor: "'Cutting fast deals with strongmen'
is an eye-catching description, but. . .it's doubtful I could have
navigated this 'shadowy' environment, much less prospered in it,
had I not paid the utmost attention to legalities and ethics."
Earlier this year, in the wake of Ukraine's Orange Revolution,
government officials announced that they would review the privatization
of the country's largest steel producer, Krivorozhstal. Although
better offers were said to be on the table, it was sold last year
for $802 million to a consortium that included Viktor Pinchuk,
son-in-law of Ukraine's former president Leonid Kuchma. In April,
two different courts issued contradictory rulings about whether
Krivorozhstal should be deprivatized and renationalized; as of
early May, the issue was still pending. If the deal is overturned,
some observers think it could lead to a re-examination of other
state sell-offs, including Midland's Zaporozhstal. Shnaider isn't
worried. "Midland has no concerns whatsoever regarding the security of
our stake in Zaporozhstal," he said in a prepared statement, e-mailed
a few days after our meeting. "The Group acquired the mill through
fully legitimate and transparent means and sees no reason why this
transaction would be disputed by the current government. Furthermore,
beyond a number of disputed privatization deals, we do not believe
that the sales of any other Ukrainian steel mills will be reversed."
While Eduard Shifrin runs the day-to-day affairs of Midland's
various companies, Shnaider remains fully engaged, attentive to every
detail. When the firm becomes involved in a new venture, says Shnaider,
"I like to understand every aspect of the business. Then, when I'm
comfortable, I take a step back." Is there a conflict between his
instinct to be hands-on and his desire to let go? He laughs. "Huge,"
he says.
The technology attests to that. Shnaider carries two cell-phones and
a BlackBerry and, according to his colleagues, is always reachable,
always in touch. He keeps personal assistants at a distance (although
in Russia and Ukraine, he continues to travel with bodyguards) and
places his own phone calls. "I think he sleeps five hours a night,"
says Levitan. "A workaholic? It's an understatement." Shnaider
ruefully acknowledges the habit. "The only time my mind stops working
on business things is if I watch a really good movie."
Largely for family reasons, Shnaider moved back to Canada from Antwerp
in 1997. He is usually up at 6 a.m. and working--either on the phone
or responding to e-mails. Later in the morning, he works out in his
home gym, showing up at the office, a Midland-owned complex not far
from where he grew up, by noon, and staying "until my wife asks me
when I'm coming home." Shnaider spends about half the year abroad
and finds the jet lag increasingly taxing. "With every trip, I find
myself saying, 'I can't take it any more.'" The result is that the
Shnaiders may relocate yet again--possibly to London or Israel. The
family home has been on the market for several months, listed at
$10.9 million, but as of early May, remained unsold. Is he pulling
up stakes? Shnaider offers a wry smile. "It is possible," he says.
In the meantime, his boyhood ambitions realized--"I always wanted
to reach a certain level, but never imagined I would come to
this level"--his drive seems undiminished. "It could still be done
better," he says. Midland needs to grow internally as much as through
acquisitions, he notes, but money attracts money. "Interesting
people with interesting ideas" approach him, and "one opportunity
leads to another. We never know what opportunity tomorrow will
bring." Evaluating new proposals now consumes an increasing amount
of his time.
According to Levitan, it's this ability to judge, to sift and
analyze information, that distinguishes Shnaider. "Alex never
becomes infatuated with the romance or the dream," he says. "He's very
grounded. He focuses on the facts. In meetings, he often just sits and
listens. He doesn't even ask many questions. And if he doesn't know,
he'll say, 'I don't know.' It's refreshing."
"He's really come out of nowhere," says another friend, who asked
not to be identified. "He's very shrewd, obviously had very good
connections, and he's done a huge amount of wheeling and dealing. But
I have to wonder whether he isn't getting a little too big. We've
seen what happens to other Soviet entrepreneurs who overreach."
Levitan dismisses the concern. "Alex will not stop. It's not really
about the money. It's about the achievement--setting impossible goals
and doing it. He just puts his head down." For Levitan, the Shnaider
story resonates with the classic immigrant theme: the quest to reclaim
the life once known. "An immigrant loses not just roots, but his sense
of comfort," says Levitan, himself an immigrant, from Minsk. "Your
sense of belonging is stripped away and you want to replace it. Couple
that with his academic training, his raw intelligence, and you get
a lot of drive. Incredible motivation. That's Alex."
WINNING ISN'T EVERYTHING In international sport, there are three global
megabrands: the Olympics, World Cup soccer and Formula One racing. For
the 10 teams on the F1 circuit, the potential dividends are huge:
sponsorships and TV revenues in the many millions and--for winning
teams like McLaren, Williams and Renault--millions more in prize money.
But the cost of admission to this exclusive club is staggering. Ford
spent $180 million (all currency in U.S. dollars) on its
Jaguar team during the 2003-2004 season and--intangible dividends
notwithstanding--won exactly nothing. Before the team went up for sale,
its best finish was sixth. Or consider colourful Irish entrepreneur
Eddie Jordan's eponymous team. Although he managed to win the odd race
during his 14 years in F1, Jordan ultimately could not raise enough
sponsorship money to compete with the likes of Ferrari, McLaren and
company. When Ford, which built his engines, decided to abandon the
sport, Jordan's dream was over.
Enter Alex Shnaider, the latest in a long line of tycoons who have felt
a compelling need to put their money into--and their mark on--sports
franchises. Fascinated by cars since he was a kid, the Russian-born
billionaire has long been a fan of F1.
His original plan was simply to build a new team and a car
from scratch, but Jordan's decision to sell saved Shnaider the
trouble. Although the reported $50-million purchase price was
roughly equivalent to what Shnaider would otherwise have spent,
the deal gives Midland immediate access to F1 television revenues
(instead of a three-year wait) and a de facto year of grace to learn
the nasty curves of the sport.
Midland vice-president Danny Tilis says his boss will attempt to
impose fiscal sanity on a sport that has been notoriously immune to
such restraint. The team's budget in the first year will be limited
to $100 million. A huge sum, perhaps, but one Midland can easily
afford. After all, notes Tilis, it represents the revenues of a
single month of production from its Ukrainian steel plant. Still,
it pales in comparison with Ferrari's annual budget ($500 million)
or Toyota's ($600 million).
So far, Midland's focus seems aimed more at the 2006 season--when
the team name will formally change to Midland--than at 2005. The
Italian company Dallara is building a new chassis for the car,
and there are rumours of a deal with Ferrari to build a new engine
(it now uses engines made by Toyota). Although the team is based in
London, Dallara is said to be designing the chassis in red, white
and blue--the colours of the Russian Federation flag.
It's hardly a coincidence. Shnaider believes there are good sponsorship
opportunities to be exploited in the former Soviet republics, and
he's hired Boris Yeltsin's grandson to help market the team. He'd
also like to bring an F1 race to Moscow--and to India, to capitalize
on the soaring popularity of one of Midland's drivers, 28-year-old
Indian Narain Karthikeyan.
If Midland's involvement in F1 leads to major acquisitions, joint
ventures or even sales growth, Shnaider's gamble may begin to look very
smart indeed, regardless of the results on the track. In the meantime,
Shnaider is following his usual approach--learning as much as he can
about the business while keeping a low profile. He has only been to
two of the five races held this year. The team's best finish so far:
10th place.
He has all the requisite toys of a tycoon--private jet, Benetti yacht,
11-bathroom mansion--but until a few months ago, no one had ever heard
of Alex Shnaider. How a kid who once stocked shelves in his parents'
deli grew up to become the billionaire next door any major corporate
office in Canada. A tasteful lobby panelled in cherrywood. A tag
team of stylish receptionists camped beneath an oversized logo. A
mammoth conference table surrounded by comfortable leather chairs,
the credenza stocked with bottles of Italian sparkling water,
the walls draped with expensive art. But as of last month, only
one Canadian corporate headquarters could boast the car--a $450,000
(all currency in U.S. dollars) silver Mercedes SLR McLaren, sleek as
a missile. Parked conspicuously outside the front door, an employee
lovingly wiping away evidence of dust, the car is the property of
Canada's newest and certainly least-known billionaire, 36-year-old
Alex Shnaider, chairman of Guernsey-based Midland Group.
For almost a decade, the Russian-born, Canadian-raised Shnaider
has quietly leveraged erstwhile state assets in the republics and
satellites of the former Soviet Union into a booming industrial
conglomerate: 34 offices scattered around the world, 50,000 employees,
2004 earnings of more than $2 billion, interests in metals, shipping,
agriculture, land development, warehousing and infrastructure.
Today, Shnaider resides comfortably in the rarefied realm of moguldom
and has the accoutrements to prove it: a fleet of luxury cars, his
own Bombardier jet, a 172-foot Benetti yacht (with a crew of 12)
registered in the Cayman Islands. Indeed, his investments were
lucrative enough to land both him and his London-based partner,
Eduard Shifrin, on Forbes's list of billionaires released in March,
albeit with relatively lowly rankings of 488 and 507, respectively.
As he amassed this wealth, Shnaider has remained virtually
invisible in his home country, unknown to Bay Street's bankers and
brokers. Geographically and psychologically, he occupies a space apart:
His executive offices are tucked far away from the hurly-burly of the
financial district, in an industrial plaza on the northern margins of
Toronto, next door to a fitness club and an Italian clothing emporium.
Shnaider, however, has stepped decisively from the shadows with
two bold, high-profile moves in the past year--a majority stake
in Toronto's controversial 70-storey Trump Tower, a combination
five-star hotel and luxury condo development that aims to be the
tallest residential building in Canada; and the $50-million purchase
of Eddie Jordan's struggling Formula One motor-racing franchise.
Despite a braying chorus of skeptics, Shnaider is bullish on
both ventures. "I'm always optimistic," he explained one recent
afternoon, nattily turned out in a bespoke Italian suit. He was
seated in the Midland boardroom, decorated with the vivid canvases
of Russian-Canadian painter Alexander Donskoi. Shnaider is entirely
comfortable in English, but speaks quietly, with a distinctive Russian
accent: "You cannot not be optimistic if you're in business." Besides,
relative to other major world cities, he argues, real estate in
downtown Toronto is undervalued, and there is a clear vacuum in the
marketplace when it comes to luxury--the residences will boast 11-foot
ceilings, floor-to-ceiling windows and private elevator access. Some
30% of the Trump suites (prices range from $1.6 million to $15 million)
have been sold, a third to Canadians, and Shnaider expects to start
construction by the spring of next year.
As for Formula One, he's convinced the Jordan franchise, to be renamed
at the end of the 2005 season, will open doors and promote the Midland
brand. "Already I see opportunities because of our association with
the team." Shnaider's deliberate emergence from the dim recesses of
Eastern Europe's business world--appearances at a press conference with
Donald Trump Jr. last fall in Toronto, and with the F1 team in February
in Moscow's Red Square--only serves to raise the larger questions:
Who is Alex Shnaider anyway? And how, from a virtual standing start,
did he manage to amass $1.4 billion in less than a decade?
Not all of this is easy to answer.
Bathurst and Steeles, the commercial heart of several sprawling
suburban subdivisions north of downtown Toronto, is a conglomeration of
townhouse developments, low-rent apartment blocks and strip malls. An
ethnic melting pot of Russians, Israelis, Polish Holocaust survivors
and Orthodox Jews, it is, in the words of writer David Bezmozgis (one
of its alumni), "a tenement delirious with striving." The Shnaiders
arrived in the neighbourhood (by way of Israel) when Alex was 13,
part of the epic tide of Jewish emigration that has washed out of
the Soviet Union over the past four decades. It was 1982, and North
America was gripped by a fierce recession. Unable to find work in their
respective professions--Dad was an engineer and computer programmer,
Mom a dentist--his parents bought a local delicatessen, Russian Caviar.
Young Alex was at once industrious and entrepreneurial; he worked
evenings, weekends and holidays in the store and delivered the Toronto
Star. Danny Tilis, a Midland vice-president who went to high school
with Shnaider--one of a number of longtime friends Shnaider has
placed in the company's executive suite--says that his gifts were
evident even then. "He was always sharp, very astute. He had a good
mind for figures and could quickly evaluate situations. You weren't
ever going to put one over on Alex."
Shnaider says he was never interested in any vocation other than
business. After graduating from William Lyon Mackenzie Collegiate,
he enrolled in economics at York University in 1987. "I studied
every day and got very good results, but by the second year, got
really bored. I felt it was too easy. I thought, 'Why am I studying
economics when things are happening in the world?' I felt I was wasting
time." Against his parents' advice, he left school and spent a year
buying and selling cars--an appetite that has only grown through the
years. In addition to the Mercedes SLR, he now owns a Bentley Arnage
and a 1955 Mercedes 300SL Gullwing, housed in the garage of his
six-bedroom, 11-bathroom home in North York, shared with his wife,
Simona, and their three daughters. When it came to cars, recalls
Nathan Jacobson, a Canadian with business interests in the former
Soviet Union and Israel who has known Shnaider for almost 16 years,
"It didn't matter what I was driving, Alex was always in something
better. I show up in a Mercedes 500; he'd be in a Mercedes 600. I
take my Jag E-Type; he'd have a Ferrari."
Shnaider eventually returned to school, graduating in 1991. While he
was completing his course load, he had started working for his future
father-in-law, the controversial Boris Birshtein, who owned Seabeco
Group, an international trading company. The two had met through
family connections. For Shnaider, Birshtein was very much a mixed
blessing. On the one hand, he often found himself in disagreement
with Birshtein's business philosophies. On the other, Birshtein
introduced him to the world of steel trading, which would become the
foundation of his fortune. "Boris had very good people working for
him," Shnaider says, "who were able to open doors." Indeed, Birshtein,
an emigre from Lithuania, had forged close connections with powerful
figures in the Kremlin, Moldova, Kyrgyzstan and Ukraine. But for
every friend he made, he also seemed to make an enemy, and in the
early 1990s, trouble haunted Birshtein like a bad headache. He was
implicated in a political scandal in Ukraine, when Alexander Volkov,
a close adviser of then-president Leonid Kuchma, was found to have
foreign bank accounts totalling $15 million; some $5 million of that
was alleged to have come from Seabeco or its associates. Everywhere
Seabeco did business, similar allegations of impropriety followed.
Prior to the Volkov affair, Shnaider worked as a project manager in
Seabeco's Zurich offices, but there is no suggestion that Shnaider
was ever tainted by any of the allegations surrounding Birshtein's
business dealings. Initially, he sold consumer goods--furniture,
televisions, computers, VCRs--to government-owned agencies or mills;
rather than cash payments, the company received finished steel, marked
it up and sold it to specialty trading firms. "That's basically how
I started," says Shnaider, "as a middleman."
It was his first trip with Birshtein--to Moscow and Kazakhstan in
1990--that proved decisive. He knew then that this was where he wanted
to do business. "Prices were so low," Shnaider recalls. "Everything was
primitive. They had the raw materials, but they had no technology,
and you had the feeling they didn't have a clue what they were
doing. There were so many opportunities because it was so backward."
In the early 1990s, unmoored from Moscow's mother ship, scores of
industries in the former Soviet republics were denationalized and sold
off, often at staggering discounts to their real asset values, and
oftentimes to well-connected politicians and bureaucrats. Corruption
was rife.
Shnaider, however, had missed this early wave of privatization in
Russia because he was too busy buying and selling Ukrainian steel. By
1993, he had left Seabeco and, with another trader, a Belgian by
the name of Lazar Fruchter, had started an independent operation
based in Antwerp. Shnaider says the partnership ended amicably,
although Fruchter says it effectively died when Shnaider announced
one day that their 50/50 arrangement was no longer sufficient:
Shnaider felt he was contributing more to the business and, thus,
wanted a more favourable equation. Fruchter, now living in Israel,
declined to elaborate, saying he has not done business with Shnaider
in eight years, though the two men still stay in touch.
On his frequent trips to Eastern Europe, Shnaider kept bumping into
Eduard Shifrin, a Ukrainian national who was running the Kiev-based
office of a Hong Kong trading firm. "He had a PhD in metallurgical
engineering, and he was quite astute," Shnaider recalls. "He knew
steel. He knew people. He had a very good reputation." One evening,
while sharing a cab after a dinner meeting in London, Shnaider made a
modest proposal, one he'd been thinking about for some time. "Eduard,
you're working for a salary," he recalls telling Shifrin. "Come and
join me. You'll be a partner. I'll fund it." Shifrin, then 34, took
a few months to consider the offer, before finally accepting.
Midland was set up in 1994, with the holding company, Midland
Resources, domiciled in the Channel Island of Guernsey, a British tax
haven. Shnaider and Shifrin had one advantage over the apostles of
capitalism sent by other Western businesses to the former republics of
the Soviet Union--they spoke Russian. "Language helped me understand
the mentality and what was really going on," says Shnaider. "We were
able to make decisions that others might not make. Take bigger risks."
Worried, for example, that mills might default on production
guarantees, some traders refused to pay for steel until it was safely
in port or actually loaded on a ship. Midland agreed to pay for the
finished product while it was still in the blast furnaces--a game of
one-upmanship that made it a favoured client. When competitors cottoned
on and copied its methods, Midland went even further--buying the coal
needed to make the steel, delivering it to the factory and taking the
steel as payment. "We understood the people and we had the [financing]
infrastructure," he says. "It gave us an edge." Another early move also
paid significant dividends--the purchase of a Siberian factory that
made fireproof bricks for steel mills, and the magnesite mine to supply
it. The quality was so high, says Shnaider, that it was like owning a
monopoly. And it gave Midland access to a broader range of steel mills.
Midland's principal source of steel was Zaporozhstal Iron and Steel
Works, now Ukraine's fourth-largest producer and the 55th largest
in the world. But when the country began its privatization frenzy in
the late 1990s, Shnaider quickly recognized the stakes. "We needed to
buy something because it was clear everything was going to be sold,"
he says. "We'd been working with this mill for many years, so we
started acquiring shares and options [at government auctions]. It
wasn't easy. Other companies also wanted to buy them," including a
group led by the influential Ukrainian parliamentary deputy Vasily
Khmelnytsky. "But we understood that if we didn't buy these shares,
our business was going to end."
By 2001, using a couple of British subsidiaries, Shnaider and
Shifrin had managed to win majority control of Zaporozhstal, but
the government still retained a 25% stake, a potentially troublesome
voting bloc. According to published reports, Shnaider threatened to
raise more money in the capital markets, effectively diluting the
government's stake, unless the remaining quarter was auctioned. The
government not only acquiesced, it struck terms highly favourable to
Midland--the winning buyer had to have delivered 700,000 tonnes of
iron ore or 400 tonnes of scrap metal to Zaporozhstal within the past
year, a condition that effectively eliminated most competitors. These
included Tekt, a Kiev-based investment bank, which sued the government
to abort the auction, claiming it would pay $37 million, almost three
times as much as Midland. Both this action and the subsequent appeal
were thrown out. In total, Shnaider acquired 93% of Zaporozhstal,
at a cost of about $70 million; the remaining float of 7% trades
publicly. He is said to have recently turned down offers to sell the
mill for $1.2 billion.
Steel is a cyclical industry. Its prices rise and fall subject to the
global vicissitudes of supply and demand. In acquiring Zaporozhstal,
Midland's timing was near perfect--steel prices were on a tear, fuelled
by China's seemingly inexhaustible appetite for the commodity. Shnaider
has used Zaporozhstal's profits (in 2004, it earned $129 million on
$1.3 billion in sales) to leverage a string of Ukrainian acquisitions:
a pipe mill, a coking plant, two factories and 35% of an iron-ore mine.
In the past few years, he's gone further afield, diversifying
Midland's assets by buying up businesses in the former Soviet Union
and its satellite states. There's another major steel plant (the
Red October Works) in Volgograd. There's a controlling interest
in Gumaplast, a Serbian maker of rubber and plastic seals for the
auto industry. There's a Midland shipping division, with a fleet
of 18 merchant vessels carrying freight around the Black Sea and
the Mediterranean. There's control of Carnex (Serbia's largest meat
packer), a controlling interest in UP Stari Grad (it owns two hotels,
several restaurants and cafes in central Belgrade), a majority stake
in the strategically located Danube port of Pancevo. And there's a
growing portfolio in Moscow, including the Arbat Business Centre,
a new condo conversion, and a contract good until 2019 to collect
municipal waste and sell advertising on the containers.
Three years ago, Shnaider made a relatively small wager on Armenia,
spending $37 million to buy the national power grid, a then-bankrupt
electricity distributor. Only a small percentage of the power company's
bills at the time were actually being collected. Midland won approval
to cut electricity to anyone who defaulted on their bills, including
municipalities. The tactic got consumers' attention. "Now," Shnaider
says, "we collect 96% to 98%." The utility further boosted margins
by cutting down on power losses based on theft. "We streamlined
management, increased salaries to inspectors by seven to 10 times to
discourage bribery and gave each regional manager targets to meet. If
they weren't met, he'd be fired. But if he met them, he was rewarded
by much more than his salary." The turnaround complete--the company
made $20 million last year--the utility, like several other Midland
acquisitions bought cheap and revived, has recently been put up for
sale. Asking price: $100 million.
His business acumen notwithstanding, some people will inevitably
wonder how it's possible for a 36-year-old, in a single decade, to
make more than a billion dollars in the former Soviet Union, a world
not easily navigated. The reality, Shnaider insists, is prosaic. On
the Forbes list of billionaires are several Russians who "were much
more successful than me in different industries, because they were
at the right place at the right time"--poised to scoop up privatized
enterprises just as they became available. Similarly, he points out,
there are dozens of internet billionaires around, many of whom made
their fortunes before turning 30. The species is no longer rare.
And if it's true that Boris Birshtein occasionally broke bread with
businessmen and politicians of questionable integrity, Shnaider
has long since distanced himself from his father-in-law. The two
had a serious falling-out in the mid-1990s, and today don't even
speak. Shnaider declined to divulge details, but says that "due to
unfortunate and irreconcilable differences relating to business
policy and family matters, I have not had any contact with my
father-in-law for more than four years." And he adds: "Conflicting
business philosophies brought our professional relationship to an end
more than 10 years ago." Now resident in Toronto, Birshtein declined
to be interviewed for this article.
Val Levitan, CEO of Talon International Development Inc. and Shnaider's
business partner in the Trump Tower, says Shnaider has never mentioned
the tiff with Birshtein. "You have to understand Alex. He does not
discuss things--period. He does not like to gossip." Separated by a
generation, Levitan characterizes Shnaider and Birshtein as emissaries
from two different worlds. "Alex is a North American businessman. Boris
is the old school. But there is a big market in the former Soviet
Union for integrity. You can make a lot of money with integrity,
because it's scarce." The Forbes magazine profile of Shnaider that
accompanied his initiation into the billionaires' club alluded to the
"murky" climate of business in the former Soviet Union. In rebuttal,
Shnaider wrote to the editor: "'Cutting fast deals with strongmen'
is an eye-catching description, but. . .it's doubtful I could have
navigated this 'shadowy' environment, much less prospered in it,
had I not paid the utmost attention to legalities and ethics."
Earlier this year, in the wake of Ukraine's Orange Revolution,
government officials announced that they would review the privatization
of the country's largest steel producer, Krivorozhstal. Although
better offers were said to be on the table, it was sold last year
for $802 million to a consortium that included Viktor Pinchuk,
son-in-law of Ukraine's former president Leonid Kuchma. In April,
two different courts issued contradictory rulings about whether
Krivorozhstal should be deprivatized and renationalized; as of
early May, the issue was still pending. If the deal is overturned,
some observers think it could lead to a re-examination of other
state sell-offs, including Midland's Zaporozhstal. Shnaider isn't
worried. "Midland has no concerns whatsoever regarding the security of
our stake in Zaporozhstal," he said in a prepared statement, e-mailed
a few days after our meeting. "The Group acquired the mill through
fully legitimate and transparent means and sees no reason why this
transaction would be disputed by the current government. Furthermore,
beyond a number of disputed privatization deals, we do not believe
that the sales of any other Ukrainian steel mills will be reversed."
While Eduard Shifrin runs the day-to-day affairs of Midland's
various companies, Shnaider remains fully engaged, attentive to every
detail. When the firm becomes involved in a new venture, says Shnaider,
"I like to understand every aspect of the business. Then, when I'm
comfortable, I take a step back." Is there a conflict between his
instinct to be hands-on and his desire to let go? He laughs. "Huge,"
he says.
The technology attests to that. Shnaider carries two cell-phones and
a BlackBerry and, according to his colleagues, is always reachable,
always in touch. He keeps personal assistants at a distance (although
in Russia and Ukraine, he continues to travel with bodyguards) and
places his own phone calls. "I think he sleeps five hours a night,"
says Levitan. "A workaholic? It's an understatement." Shnaider
ruefully acknowledges the habit. "The only time my mind stops working
on business things is if I watch a really good movie."
Largely for family reasons, Shnaider moved back to Canada from Antwerp
in 1997. He is usually up at 6 a.m. and working--either on the phone
or responding to e-mails. Later in the morning, he works out in his
home gym, showing up at the office, a Midland-owned complex not far
from where he grew up, by noon, and staying "until my wife asks me
when I'm coming home." Shnaider spends about half the year abroad
and finds the jet lag increasingly taxing. "With every trip, I find
myself saying, 'I can't take it any more.'" The result is that the
Shnaiders may relocate yet again--possibly to London or Israel. The
family home has been on the market for several months, listed at
$10.9 million, but as of early May, remained unsold. Is he pulling
up stakes? Shnaider offers a wry smile. "It is possible," he says.
In the meantime, his boyhood ambitions realized--"I always wanted
to reach a certain level, but never imagined I would come to
this level"--his drive seems undiminished. "It could still be done
better," he says. Midland needs to grow internally as much as through
acquisitions, he notes, but money attracts money. "Interesting
people with interesting ideas" approach him, and "one opportunity
leads to another. We never know what opportunity tomorrow will
bring." Evaluating new proposals now consumes an increasing amount
of his time.
According to Levitan, it's this ability to judge, to sift and
analyze information, that distinguishes Shnaider. "Alex never
becomes infatuated with the romance or the dream," he says. "He's very
grounded. He focuses on the facts. In meetings, he often just sits and
listens. He doesn't even ask many questions. And if he doesn't know,
he'll say, 'I don't know.' It's refreshing."
"He's really come out of nowhere," says another friend, who asked
not to be identified. "He's very shrewd, obviously had very good
connections, and he's done a huge amount of wheeling and dealing. But
I have to wonder whether he isn't getting a little too big. We've
seen what happens to other Soviet entrepreneurs who overreach."
Levitan dismisses the concern. "Alex will not stop. It's not really
about the money. It's about the achievement--setting impossible goals
and doing it. He just puts his head down." For Levitan, the Shnaider
story resonates with the classic immigrant theme: the quest to reclaim
the life once known. "An immigrant loses not just roots, but his sense
of comfort," says Levitan, himself an immigrant, from Minsk. "Your
sense of belonging is stripped away and you want to replace it. Couple
that with his academic training, his raw intelligence, and you get
a lot of drive. Incredible motivation. That's Alex."
From: Emil Lazarian | Ararat NewsPress
Michael Posner
Globe and Mail
Tuesday, Mar. 17, 2009 03:19PM EDT
He has all the requisite toys of a tycoon--private jet, Benetti yacht,
11-bathroom mansion--but until a few months ago, no one had ever heard
of Alex Shnaider. How a kid who once stocked shelves in his parents'
deli grew up to become the billionaire next door But for the car,
it might beany major corporate office in Canada. A tasteful lobby
panelled in cherrywood. A tag team of stylish receptionists camped
beneath an oversized logo. A mammoth conference table surrounded
by comfortable leather chairs, the credenza stocked with bottles of
Italian sparkling water, the walls draped with expensive art. But as
of last month, only one Canadian corporate headquarters could boast
the car--a $450,000 (all currency in U.S. dollars) silver Mercedes SLR
McLaren, sleek as a missile. Parked conspicuously outside the front
door, an employee lovingly wiping away evidence of dust, the car is
the property of Canada's newest and certainly least-known billionaire,
36-year-old Alex Shnaider, chairman of Guernsey-based Midland Group.
For almost a decade, the Russian-born, Canadian-raised Shnaider
has quietly leveraged erstwhile state assets in the republics and
satellites of the former Soviet Union into a booming industrial
conglomerate: 34 offices scattered around the world, 50,000 employees,
2004 earnings of more than $2 billion, interests in metals, shipping,
agriculture, land development, warehousing and infrastructure.
Today, Shnaider resides comfortably in the rarefied realm of moguldom
and has the accoutrements to prove it: a fleet of luxury cars, his
own Bombardier jet, a 172-foot Benetti yacht (with a crew of 12)
registered in the Cayman Islands. Indeed, his investments were
lucrative enough to land both him and his London-based partner,
Eduard Shifrin, on Forbes's list of billionaires released in March,
albeit with relatively lowly rankings of 488 and 507, respectively.
As he amassed this wealth, Shnaider has remained virtually
invisible in his home country, unknown to Bay Street's bankers and
brokers. Geographically and psychologically, he occupies a space apart:
His executive offices are tucked far away from the hurly-burly of the
financial district, in an industrial plaza on the northern margins of
Toronto, next door to a fitness club and an Italian clothing emporium.
Shnaider, however, has stepped decisively from the shadows with
two bold, high-profile moves in the past year--a majority stake
in Toronto's controversial 70-storey Trump Tower, a combination
five-star hotel and luxury condo development that aims to be the
tallest residential building in Canada; and the $50-million purchase
of Eddie Jordan's struggling Formula One motor-racing franchise.
Despite a braying chorus of skeptics, Shnaider is bullish on
both ventures. "I'm always optimistic," he explained one recent
afternoon, nattily turned out in a bespoke Italian suit. He was
seated in the Midland boardroom, decorated with the vivid canvases
of Russian-Canadian painter Alexander Donskoi. Shnaider is entirely
comfortable in English, but speaks quietly, with a distinctive Russian
accent: "You cannot not be optimistic if you're in business." Besides,
relative to other major world cities, he argues, real estate in
downtown Toronto is undervalued, and there is a clear vacuum in the
marketplace when it comes to luxury--the residences will boast 11-foot
ceilings, floor-to-ceiling windows and private elevator access. Some
30% of the Trump suites (prices range from $1.6 million to $15 million)
have been sold, a third to Canadians, and Shnaider expects to start
construction by the spring of next year.
As for Formula One, he's convinced the Jordan franchise, to be renamed
at the end of the 2005 season, will open doors and promote the Midland
brand. "Already I see opportunities because of our association with
the team." Shnaider's deliberate emergence from the dim recesses of
Eastern Europe's business world--appearances at a press conference with
Donald Trump Jr. last fall in Toronto, and with the F1 team in February
in Moscow's Red Square--only serves to raise the larger questions:
Who is Alex Shnaider anyway? And how, from a virtual standing start,
did he manage to amass $1.4 billion in less than a decade?
Not all of this is easy to answer.
bathurst and Steeles, the commercial heart of several sprawling
suburban subdivisions north of downtown Toronto, is a conglomeration of
townhouse developments, low-rent apartment blocks and strip malls. An
ethnic melting pot of Russians, Israelis, Polish Holocaust survivors
and Orthodox Jews, it is, in the words of writer David Bezmozgis (one
of its alumni), "a tenement delirious with striving." The Shnaiders
arrived in the neighbourhood (by way of Israel) when Alex was 13,
part of the epic tide of Jewish emigration that has washed out of
the Soviet Union over the past four decades. It was 1982, and North
America was gripped by a fierce recession. Unable to find work in their
respective professions--Dad was an engineer and computer programmer,
Mom a dentist--his parents bought a local delicatessen, Russian Caviar.
Young Alex was at once industrious and entrepreneurial; he worked
evenings, weekends and holidays in the store and delivered the Toronto
Star. Danny Tilis, a Midland vice-president who went to high school
with Shnaider--one of a number of longtime friends Shnaider has
placed in the company's executive suite--says that his gifts were
evident even then. "He was always sharp, very astute. He had a good
mind for figures and could quickly evaluate situations. You weren't
ever going to put one over on Alex."
Shnaider says he was never interested in any vocation other than
business. After graduating from William Lyon Mackenzie Collegiate,
he enrolled in economics at York University in 1987. "I studied
every day and got very good results, but by the second year, got
really bored. I felt it was too easy. I thought, 'Why am I studying
economics when things are happening in the world?' I felt I was wasting
time." Against his parents' advice, he left school and spent a year
buying and selling cars--an appetite that has only grown through the
years. In addition to the Mercedes SLR, he now owns a Bentley Arnage
and a 1955 Mercedes 300SL Gullwing, housed in the garage of his
six-bedroom, 11-bathroom home in North York, shared with his wife,
Simona, and their three daughters. When it came to cars, recalls
Nathan Jacobson, a Canadian with business interests in the former
Soviet Union and Israel who has known Shnaider for almost 16 years,
"It didn't matter what I was driving, Alex was always in something
better. I show up in a Mercedes 500; he'd be in a Mercedes 600. I
take my Jag E-Type; he'd have a Ferrari."
Shnaider eventually returned to school, graduating in 1991. While he
was completing his course load, he had started working for his future
father-in-law, the controversial Boris Birshtein, who owned Seabeco
Group, an international trading company. The two had met through
family connections. For Shnaider, Birshtein was very much a mixed
blessing. On the one hand, he often found himself in disagreement
with Birshtein's business philosophies. On the other, Birshtein
introduced him to the world of steel trading, which would become the
foundation of his fortune. "Boris had very good people working for
him," Shnaider says, "who were able to open doors." Indeed, Birshtein,
an emigre from Lithuania, had forged close connections with powerful
figures in the Kremlin, Moldova, Kyrgyzstan and Ukraine. But for
every friend he made, he also seemed to make an enemy, and in the
early 1990s, trouble haunted Birshtein like a bad headache. He was
implicated in a political scandal in Ukraine, when Alexander Volkov,
a close adviser of then-president Leonid Kuchma, was found to have
foreign bank accounts totalling $15 million; some $5 million of that
was alleged to have come from Seabeco or its associates. Everywhere
Seabeco did business, similar allegations of impropriety followed.
Prior to the Volkov affair, Shnaider worked as a project manager in
Seabeco's Zurich offices, but there is no suggestion that Shnaider
was ever tainted by any of the allegations surrounding Birshtein's
business dealings. Initially, he sold consumer goods--furniture,
televisions, computers, VCRs--to government-owned agencies or mills;
rather than cash payments, the company received finished steel, marked
it up and sold it to specialty trading firms. "That's basically how
I started," says Shnaider, "as a middleman."
It was his first trip with Birshtein--to Moscow and Kazakhstan in
1990--that proved decisive. He knew then that this was where he wanted
to do business. "Prices were so low," Shnaider recalls. "Everything was
primitive. They had the raw materials, but they had no technology,
and you had the feeling they didn't have a clue what they were
doing. There were so many opportunities because it was so backward."
In the early 1990s, unmoored from Moscow's mother ship, scores of
industries in the former Soviet republics were denationalized and sold
off, often at staggering discounts to their real asset values, and
oftentimes to well-connected politicians and bureaucrats. Corruption
was rife.
Shnaider, however, had missed this early wave of privatization in
Russia because he was too busy buying and selling Ukrainian steel. By
1993, he had left Seabeco and, with another trader, a Belgian by
the name of Lazar Fruchter, had started an independent operation
based in Antwerp. Shnaider says the partnership ended amicably,
although Fruchter says it effectively died when Shnaider announced
one day that their 50/50 arrangement was no longer sufficient:
Shnaider felt he was contributing more to the business and, thus,
wanted a more favourable equation. Fruchter, now living in Israel,
declined to elaborate, saying he has not done business with Shnaider
in eight years, though the two men still stay in touch.
On his frequent trips to Eastern Europe, Shnaider kept bumping into
Eduard Shifrin, a Ukrainian national who was running the Kiev-based
office of a Hong Kong trading firm. "He had a PhD in metallurgical
engineering, and he was quite astute," Shnaider recalls. "He knew
steel. He knew people. He had a very good reputation." One evening,
while sharing a cab after a dinner meeting in London, Shnaider made a
modest proposal, one he'd been thinking about for some time. "Eduard,
you're working for a salary," he recalls telling Shifrin. "Come and
join me. You'll be a partner. I'll fund it." Shifrin, then 34, took
a few months to consider the offer, before finally accepting.
Midland was set up in 1994, with the holding company, Midland
Resources, domiciled in the Channel Island of Guernsey, a British tax
haven. Shnaider and Shifrin had one advantage over the apostles of
capitalism sent by other Western businesses to the former republics of
the Soviet Union--they spoke Russian. "Language helped me understand
the mentality and what was really going on," says Shnaider. "We were
able to make decisions that others might not make. Take bigger risks."
Worried, for example, that mills might default on production
guarantees, some traders refused to pay for steel until it was safely
in port or actually loaded on a ship. Midland agreed to pay for the
finished product while it was still in the blast furnaces--a game of
one-upmanship that made it a favoured client. When competitors cottoned
on and copied its methods, Midland went even further--buying the coal
needed to make the steel, delivering it to the factory and taking the
steel as payment. "We understood the people and we had the [financing]
infrastructure," he says. "It gave us an edge." Another early move also
paid significant dividends--the purchase of a Siberian factory that
made fireproof bricks for steel mills, and the magnesite mine to supply
it. The quality was so high, says Shnaider, that it was like owning a
monopoly. And it gave Midland access to a broader range of steel mills.
Midland's principal source of steel was Zaporozhstal Iron and Steel
Works, now Ukraine's fourth-largest producer and the 55th largest
in the world. But when the country began its privatization frenzy in
the late 1990s, Shnaider quickly recognized the stakes. "We needed to
buy something because it was clear everything was going to be sold,"
he says. "We'd been working with this mill for many years, so we
started acquiring shares and options [at government auctions]. It
wasn't easy. Other companies also wanted to buy them," including a
group led by the influential Ukrainian parliamentary deputy Vasily
Khmelnytsky. "But we understood that if we didn't buy these shares,
our business was going to end."
By 2001, using a couple of British subsidiaries, Shnaider and
Shifrin had managed to win majority control of Zaporozhstal, but
the government still retained a 25% stake, a potentially troublesome
voting bloc. According to published reports, Shnaider threatened to
raise more money in the capital markets, effectively diluting the
government's stake, unless the remaining quarter was auctioned. The
government not only acquiesced, it struck terms highly favourable to
Midland--the winning buyer had to have delivered 700,000 tonnes of
iron ore or 400 tonnes of scrap metal to Zaporozhstal within the past
year, a condition that effectively eliminated most competitors. These
included Tekt, a Kiev-based investment bank, which sued the government
to abort the auction, claiming it would pay $37 million, almost three
times as much as Midland. Both this action and the subsequent appeal
were thrown out. In total, Shnaider acquired 93% of Zaporozhstal,
at a cost of about $70 million; the remaining float of 7% trades
publicly. He is said to have recently turned down offers to sell the
mill for $1.2 billion.
Steel is a cyclical industry. Its prices rise and fall subject to the
global vicissitudes of supply and demand. In acquiring Zaporozhstal,
Midland's timing was near perfect--steel prices were on a tear, fuelled
by China's seemingly inexhaustible appetite for the commodity. Shnaider
has used Zaporozhstal's profits (in 2004, it earned $129 million on
$1.3 billion in sales) to leverage a string of Ukrainian acquisitions:
a pipe mill, a coking plant, two factories and 35% of an iron-ore mine.
In the past few years, he's gone further afield, diversifying
Midland's assets by buying up businesses in the former Soviet Union
and its satellite states. There's another major steel plant (the
Red October Works) in Volgograd. There's a controlling interest
in Gumaplast, a Serbian maker of rubber and plastic seals for the
auto industry. There's a Midland shipping division, with a fleet
of 18 merchant vessels carrying freight around the Black Sea and
the Mediterranean. There's control of Carnex (Serbia's largest meat
packer), a controlling interest in UP Stari Grad (it owns two hotels,
several restaurants and cafes in central Belgrade), a majority stake
in the strategically located Danube port of Pancevo. And there's a
growing portfolio in Moscow, including the Arbat Business Centre,
a new condo conversion, and a contract good until 2019 to collect
municipal waste and sell advertising on the containers.
Three years ago, Shnaider made a relatively small wager on Armenia,
spending $37 million to buy the national power grid, a then-bankrupt
electricity distributor. Only a small percentage of the power company's
bills at the time were actually being collected. Midland won approval
to cut electricity to anyone who defaulted on their bills, including
municipalities. The tactic got consumers' attention. "Now," Shnaider
says, "we collect 96% to 98%." The utility further boosted margins
by cutting down on power losses based on theft. "We streamlined
management, increased salaries to inspectors by seven to 10 times to
discourage bribery and gave each regional manager targets to meet. If
they weren't met, he'd be fired. But if he met them, he was rewarded
by much more than his salary." The turnaround complete--the company
made $20 million last year--the utility, like several other Midland
acquisitions bought cheap and revived, has recently been put up for
sale. Asking price: $100 million.
His business acumen notwithstanding, some people will inevitably
wonder how it's possible for a 36-year-old, in a single decade, to
make more than a billion dollars in the former Soviet Union, a world
not easily navigated. The reality, Shnaider insists, is prosaic. On
the Forbes list of billionaires are several Russians who "were much
more successful than me in different industries, because they were
at the right place at the right time"--poised to scoop up privatized
enterprises just as they became available. Similarly, he points out,
there are dozens of internet billionaires around, many of whom made
their fortunes before turning 30. The species is no longer rare.
And if it's true that Boris Birshtein occasionally broke bread with
businessmen and politicians of questionable integrity, Shnaider
has long since distanced himself from his father-in-law. The two
had a serious falling-out in the mid-1990s, and today don't even
speak. Shnaider declined to divulge details, but says that "due to
unfortunate and irreconcilable differences relating to business
policy and family matters, I have not had any contact with my
father-in-law for more than four years." And he adds: "Conflicting
business philosophies brought our professional relationship to an end
more than 10 years ago." Now resident in Toronto, Birshtein declined
to be interviewed for this article.
Val Levitan, CEO of Talon International Development Inc. and Shnaider's
business partner in the Trump Tower, says Shnaider has never mentioned
the tiff with Birshtein. "You have to understand Alex. He does not
discuss things--period. He does not like to gossip." Separated by a
generation, Levitan characterizes Shnaider and Birshtein as emissaries
from two different worlds. "Alex is a North American businessman. Boris
is the old school. But there is a big market in the former Soviet
Union for integrity. You can make a lot of money with integrity,
because it's scarce." The Forbes magazine profile of Shnaider that
accompanied his initiation into the billionaires' club alluded to the
"murky" climate of business in the former Soviet Union. In rebuttal,
Shnaider wrote to the editor: "'Cutting fast deals with strongmen'
is an eye-catching description, but. . .it's doubtful I could have
navigated this 'shadowy' environment, much less prospered in it,
had I not paid the utmost attention to legalities and ethics."
Earlier this year, in the wake of Ukraine's Orange Revolution,
government officials announced that they would review the privatization
of the country's largest steel producer, Krivorozhstal. Although
better offers were said to be on the table, it was sold last year
for $802 million to a consortium that included Viktor Pinchuk,
son-in-law of Ukraine's former president Leonid Kuchma. In April,
two different courts issued contradictory rulings about whether
Krivorozhstal should be deprivatized and renationalized; as of
early May, the issue was still pending. If the deal is overturned,
some observers think it could lead to a re-examination of other
state sell-offs, including Midland's Zaporozhstal. Shnaider isn't
worried. "Midland has no concerns whatsoever regarding the security of
our stake in Zaporozhstal," he said in a prepared statement, e-mailed
a few days after our meeting. "The Group acquired the mill through
fully legitimate and transparent means and sees no reason why this
transaction would be disputed by the current government. Furthermore,
beyond a number of disputed privatization deals, we do not believe
that the sales of any other Ukrainian steel mills will be reversed."
While Eduard Shifrin runs the day-to-day affairs of Midland's
various companies, Shnaider remains fully engaged, attentive to every
detail. When the firm becomes involved in a new venture, says Shnaider,
"I like to understand every aspect of the business. Then, when I'm
comfortable, I take a step back." Is there a conflict between his
instinct to be hands-on and his desire to let go? He laughs. "Huge,"
he says.
The technology attests to that. Shnaider carries two cell-phones and
a BlackBerry and, according to his colleagues, is always reachable,
always in touch. He keeps personal assistants at a distance (although
in Russia and Ukraine, he continues to travel with bodyguards) and
places his own phone calls. "I think he sleeps five hours a night,"
says Levitan. "A workaholic? It's an understatement." Shnaider
ruefully acknowledges the habit. "The only time my mind stops working
on business things is if I watch a really good movie."
Largely for family reasons, Shnaider moved back to Canada from Antwerp
in 1997. He is usually up at 6 a.m. and working--either on the phone
or responding to e-mails. Later in the morning, he works out in his
home gym, showing up at the office, a Midland-owned complex not far
from where he grew up, by noon, and staying "until my wife asks me
when I'm coming home." Shnaider spends about half the year abroad
and finds the jet lag increasingly taxing. "With every trip, I find
myself saying, 'I can't take it any more.'" The result is that the
Shnaiders may relocate yet again--possibly to London or Israel. The
family home has been on the market for several months, listed at
$10.9 million, but as of early May, remained unsold. Is he pulling
up stakes? Shnaider offers a wry smile. "It is possible," he says.
In the meantime, his boyhood ambitions realized--"I always wanted
to reach a certain level, but never imagined I would come to
this level"--his drive seems undiminished. "It could still be done
better," he says. Midland needs to grow internally as much as through
acquisitions, he notes, but money attracts money. "Interesting
people with interesting ideas" approach him, and "one opportunity
leads to another. We never know what opportunity tomorrow will
bring." Evaluating new proposals now consumes an increasing amount
of his time.
According to Levitan, it's this ability to judge, to sift and
analyze information, that distinguishes Shnaider. "Alex never
becomes infatuated with the romance or the dream," he says. "He's very
grounded. He focuses on the facts. In meetings, he often just sits and
listens. He doesn't even ask many questions. And if he doesn't know,
he'll say, 'I don't know.' It's refreshing."
"He's really come out of nowhere," says another friend, who asked
not to be identified. "He's very shrewd, obviously had very good
connections, and he's done a huge amount of wheeling and dealing. But
I have to wonder whether he isn't getting a little too big. We've
seen what happens to other Soviet entrepreneurs who overreach."
Levitan dismisses the concern. "Alex will not stop. It's not really
about the money. It's about the achievement--setting impossible goals
and doing it. He just puts his head down." For Levitan, the Shnaider
story resonates with the classic immigrant theme: the quest to reclaim
the life once known. "An immigrant loses not just roots, but his sense
of comfort," says Levitan, himself an immigrant, from Minsk. "Your
sense of belonging is stripped away and you want to replace it. Couple
that with his academic training, his raw intelligence, and you get
a lot of drive. Incredible motivation. That's Alex."
WINNING ISN'T EVERYTHING In international sport, there are three global
megabrands: the Olympics, World Cup soccer and Formula One racing. For
the 10 teams on the F1 circuit, the potential dividends are huge:
sponsorships and TV revenues in the many millions and--for winning
teams like McLaren, Williams and Renault--millions more in prize money.
But the cost of admission to this exclusive club is staggering. Ford
spent $180 million (all currency in U.S. dollars) on its
Jaguar team during the 2003-2004 season and--intangible dividends
notwithstanding--won exactly nothing. Before the team went up for sale,
its best finish was sixth. Or consider colourful Irish entrepreneur
Eddie Jordan's eponymous team. Although he managed to win the odd race
during his 14 years in F1, Jordan ultimately could not raise enough
sponsorship money to compete with the likes of Ferrari, McLaren and
company. When Ford, which built his engines, decided to abandon the
sport, Jordan's dream was over.
Enter Alex Shnaider, the latest in a long line of tycoons who have felt
a compelling need to put their money into--and their mark on--sports
franchises. Fascinated by cars since he was a kid, the Russian-born
billionaire has long been a fan of F1.
His original plan was simply to build a new team and a car
from scratch, but Jordan's decision to sell saved Shnaider the
trouble. Although the reported $50-million purchase price was
roughly equivalent to what Shnaider would otherwise have spent,
the deal gives Midland immediate access to F1 television revenues
(instead of a three-year wait) and a de facto year of grace to learn
the nasty curves of the sport.
Midland vice-president Danny Tilis says his boss will attempt to
impose fiscal sanity on a sport that has been notoriously immune to
such restraint. The team's budget in the first year will be limited
to $100 million. A huge sum, perhaps, but one Midland can easily
afford. After all, notes Tilis, it represents the revenues of a
single month of production from its Ukrainian steel plant. Still,
it pales in comparison with Ferrari's annual budget ($500 million)
or Toyota's ($600 million).
So far, Midland's focus seems aimed more at the 2006 season--when
the team name will formally change to Midland--than at 2005. The
Italian company Dallara is building a new chassis for the car,
and there are rumours of a deal with Ferrari to build a new engine
(it now uses engines made by Toyota). Although the team is based in
London, Dallara is said to be designing the chassis in red, white
and blue--the colours of the Russian Federation flag.
It's hardly a coincidence. Shnaider believes there are good sponsorship
opportunities to be exploited in the former Soviet republics, and
he's hired Boris Yeltsin's grandson to help market the team. He'd
also like to bring an F1 race to Moscow--and to India, to capitalize
on the soaring popularity of one of Midland's drivers, 28-year-old
Indian Narain Karthikeyan.
If Midland's involvement in F1 leads to major acquisitions, joint
ventures or even sales growth, Shnaider's gamble may begin to look very
smart indeed, regardless of the results on the track. In the meantime,
Shnaider is following his usual approach--learning as much as he can
about the business while keeping a low profile. He has only been to
two of the five races held this year. The team's best finish so far:
10th place.
He has all the requisite toys of a tycoon--private jet, Benetti yacht,
11-bathroom mansion--but until a few months ago, no one had ever heard
of Alex Shnaider. How a kid who once stocked shelves in his parents'
deli grew up to become the billionaire next door any major corporate
office in Canada. A tasteful lobby panelled in cherrywood. A tag
team of stylish receptionists camped beneath an oversized logo. A
mammoth conference table surrounded by comfortable leather chairs,
the credenza stocked with bottles of Italian sparkling water,
the walls draped with expensive art. But as of last month, only
one Canadian corporate headquarters could boast the car--a $450,000
(all currency in U.S. dollars) silver Mercedes SLR McLaren, sleek as
a missile. Parked conspicuously outside the front door, an employee
lovingly wiping away evidence of dust, the car is the property of
Canada's newest and certainly least-known billionaire, 36-year-old
Alex Shnaider, chairman of Guernsey-based Midland Group.
For almost a decade, the Russian-born, Canadian-raised Shnaider
has quietly leveraged erstwhile state assets in the republics and
satellites of the former Soviet Union into a booming industrial
conglomerate: 34 offices scattered around the world, 50,000 employees,
2004 earnings of more than $2 billion, interests in metals, shipping,
agriculture, land development, warehousing and infrastructure.
Today, Shnaider resides comfortably in the rarefied realm of moguldom
and has the accoutrements to prove it: a fleet of luxury cars, his
own Bombardier jet, a 172-foot Benetti yacht (with a crew of 12)
registered in the Cayman Islands. Indeed, his investments were
lucrative enough to land both him and his London-based partner,
Eduard Shifrin, on Forbes's list of billionaires released in March,
albeit with relatively lowly rankings of 488 and 507, respectively.
As he amassed this wealth, Shnaider has remained virtually
invisible in his home country, unknown to Bay Street's bankers and
brokers. Geographically and psychologically, he occupies a space apart:
His executive offices are tucked far away from the hurly-burly of the
financial district, in an industrial plaza on the northern margins of
Toronto, next door to a fitness club and an Italian clothing emporium.
Shnaider, however, has stepped decisively from the shadows with
two bold, high-profile moves in the past year--a majority stake
in Toronto's controversial 70-storey Trump Tower, a combination
five-star hotel and luxury condo development that aims to be the
tallest residential building in Canada; and the $50-million purchase
of Eddie Jordan's struggling Formula One motor-racing franchise.
Despite a braying chorus of skeptics, Shnaider is bullish on
both ventures. "I'm always optimistic," he explained one recent
afternoon, nattily turned out in a bespoke Italian suit. He was
seated in the Midland boardroom, decorated with the vivid canvases
of Russian-Canadian painter Alexander Donskoi. Shnaider is entirely
comfortable in English, but speaks quietly, with a distinctive Russian
accent: "You cannot not be optimistic if you're in business." Besides,
relative to other major world cities, he argues, real estate in
downtown Toronto is undervalued, and there is a clear vacuum in the
marketplace when it comes to luxury--the residences will boast 11-foot
ceilings, floor-to-ceiling windows and private elevator access. Some
30% of the Trump suites (prices range from $1.6 million to $15 million)
have been sold, a third to Canadians, and Shnaider expects to start
construction by the spring of next year.
As for Formula One, he's convinced the Jordan franchise, to be renamed
at the end of the 2005 season, will open doors and promote the Midland
brand. "Already I see opportunities because of our association with
the team." Shnaider's deliberate emergence from the dim recesses of
Eastern Europe's business world--appearances at a press conference with
Donald Trump Jr. last fall in Toronto, and with the F1 team in February
in Moscow's Red Square--only serves to raise the larger questions:
Who is Alex Shnaider anyway? And how, from a virtual standing start,
did he manage to amass $1.4 billion in less than a decade?
Not all of this is easy to answer.
Bathurst and Steeles, the commercial heart of several sprawling
suburban subdivisions north of downtown Toronto, is a conglomeration of
townhouse developments, low-rent apartment blocks and strip malls. An
ethnic melting pot of Russians, Israelis, Polish Holocaust survivors
and Orthodox Jews, it is, in the words of writer David Bezmozgis (one
of its alumni), "a tenement delirious with striving." The Shnaiders
arrived in the neighbourhood (by way of Israel) when Alex was 13,
part of the epic tide of Jewish emigration that has washed out of
the Soviet Union over the past four decades. It was 1982, and North
America was gripped by a fierce recession. Unable to find work in their
respective professions--Dad was an engineer and computer programmer,
Mom a dentist--his parents bought a local delicatessen, Russian Caviar.
Young Alex was at once industrious and entrepreneurial; he worked
evenings, weekends and holidays in the store and delivered the Toronto
Star. Danny Tilis, a Midland vice-president who went to high school
with Shnaider--one of a number of longtime friends Shnaider has
placed in the company's executive suite--says that his gifts were
evident even then. "He was always sharp, very astute. He had a good
mind for figures and could quickly evaluate situations. You weren't
ever going to put one over on Alex."
Shnaider says he was never interested in any vocation other than
business. After graduating from William Lyon Mackenzie Collegiate,
he enrolled in economics at York University in 1987. "I studied
every day and got very good results, but by the second year, got
really bored. I felt it was too easy. I thought, 'Why am I studying
economics when things are happening in the world?' I felt I was wasting
time." Against his parents' advice, he left school and spent a year
buying and selling cars--an appetite that has only grown through the
years. In addition to the Mercedes SLR, he now owns a Bentley Arnage
and a 1955 Mercedes 300SL Gullwing, housed in the garage of his
six-bedroom, 11-bathroom home in North York, shared with his wife,
Simona, and their three daughters. When it came to cars, recalls
Nathan Jacobson, a Canadian with business interests in the former
Soviet Union and Israel who has known Shnaider for almost 16 years,
"It didn't matter what I was driving, Alex was always in something
better. I show up in a Mercedes 500; he'd be in a Mercedes 600. I
take my Jag E-Type; he'd have a Ferrari."
Shnaider eventually returned to school, graduating in 1991. While he
was completing his course load, he had started working for his future
father-in-law, the controversial Boris Birshtein, who owned Seabeco
Group, an international trading company. The two had met through
family connections. For Shnaider, Birshtein was very much a mixed
blessing. On the one hand, he often found himself in disagreement
with Birshtein's business philosophies. On the other, Birshtein
introduced him to the world of steel trading, which would become the
foundation of his fortune. "Boris had very good people working for
him," Shnaider says, "who were able to open doors." Indeed, Birshtein,
an emigre from Lithuania, had forged close connections with powerful
figures in the Kremlin, Moldova, Kyrgyzstan and Ukraine. But for
every friend he made, he also seemed to make an enemy, and in the
early 1990s, trouble haunted Birshtein like a bad headache. He was
implicated in a political scandal in Ukraine, when Alexander Volkov,
a close adviser of then-president Leonid Kuchma, was found to have
foreign bank accounts totalling $15 million; some $5 million of that
was alleged to have come from Seabeco or its associates. Everywhere
Seabeco did business, similar allegations of impropriety followed.
Prior to the Volkov affair, Shnaider worked as a project manager in
Seabeco's Zurich offices, but there is no suggestion that Shnaider
was ever tainted by any of the allegations surrounding Birshtein's
business dealings. Initially, he sold consumer goods--furniture,
televisions, computers, VCRs--to government-owned agencies or mills;
rather than cash payments, the company received finished steel, marked
it up and sold it to specialty trading firms. "That's basically how
I started," says Shnaider, "as a middleman."
It was his first trip with Birshtein--to Moscow and Kazakhstan in
1990--that proved decisive. He knew then that this was where he wanted
to do business. "Prices were so low," Shnaider recalls. "Everything was
primitive. They had the raw materials, but they had no technology,
and you had the feeling they didn't have a clue what they were
doing. There were so many opportunities because it was so backward."
In the early 1990s, unmoored from Moscow's mother ship, scores of
industries in the former Soviet republics were denationalized and sold
off, often at staggering discounts to their real asset values, and
oftentimes to well-connected politicians and bureaucrats. Corruption
was rife.
Shnaider, however, had missed this early wave of privatization in
Russia because he was too busy buying and selling Ukrainian steel. By
1993, he had left Seabeco and, with another trader, a Belgian by
the name of Lazar Fruchter, had started an independent operation
based in Antwerp. Shnaider says the partnership ended amicably,
although Fruchter says it effectively died when Shnaider announced
one day that their 50/50 arrangement was no longer sufficient:
Shnaider felt he was contributing more to the business and, thus,
wanted a more favourable equation. Fruchter, now living in Israel,
declined to elaborate, saying he has not done business with Shnaider
in eight years, though the two men still stay in touch.
On his frequent trips to Eastern Europe, Shnaider kept bumping into
Eduard Shifrin, a Ukrainian national who was running the Kiev-based
office of a Hong Kong trading firm. "He had a PhD in metallurgical
engineering, and he was quite astute," Shnaider recalls. "He knew
steel. He knew people. He had a very good reputation." One evening,
while sharing a cab after a dinner meeting in London, Shnaider made a
modest proposal, one he'd been thinking about for some time. "Eduard,
you're working for a salary," he recalls telling Shifrin. "Come and
join me. You'll be a partner. I'll fund it." Shifrin, then 34, took
a few months to consider the offer, before finally accepting.
Midland was set up in 1994, with the holding company, Midland
Resources, domiciled in the Channel Island of Guernsey, a British tax
haven. Shnaider and Shifrin had one advantage over the apostles of
capitalism sent by other Western businesses to the former republics of
the Soviet Union--they spoke Russian. "Language helped me understand
the mentality and what was really going on," says Shnaider. "We were
able to make decisions that others might not make. Take bigger risks."
Worried, for example, that mills might default on production
guarantees, some traders refused to pay for steel until it was safely
in port or actually loaded on a ship. Midland agreed to pay for the
finished product while it was still in the blast furnaces--a game of
one-upmanship that made it a favoured client. When competitors cottoned
on and copied its methods, Midland went even further--buying the coal
needed to make the steel, delivering it to the factory and taking the
steel as payment. "We understood the people and we had the [financing]
infrastructure," he says. "It gave us an edge." Another early move also
paid significant dividends--the purchase of a Siberian factory that
made fireproof bricks for steel mills, and the magnesite mine to supply
it. The quality was so high, says Shnaider, that it was like owning a
monopoly. And it gave Midland access to a broader range of steel mills.
Midland's principal source of steel was Zaporozhstal Iron and Steel
Works, now Ukraine's fourth-largest producer and the 55th largest
in the world. But when the country began its privatization frenzy in
the late 1990s, Shnaider quickly recognized the stakes. "We needed to
buy something because it was clear everything was going to be sold,"
he says. "We'd been working with this mill for many years, so we
started acquiring shares and options [at government auctions]. It
wasn't easy. Other companies also wanted to buy them," including a
group led by the influential Ukrainian parliamentary deputy Vasily
Khmelnytsky. "But we understood that if we didn't buy these shares,
our business was going to end."
By 2001, using a couple of British subsidiaries, Shnaider and
Shifrin had managed to win majority control of Zaporozhstal, but
the government still retained a 25% stake, a potentially troublesome
voting bloc. According to published reports, Shnaider threatened to
raise more money in the capital markets, effectively diluting the
government's stake, unless the remaining quarter was auctioned. The
government not only acquiesced, it struck terms highly favourable to
Midland--the winning buyer had to have delivered 700,000 tonnes of
iron ore or 400 tonnes of scrap metal to Zaporozhstal within the past
year, a condition that effectively eliminated most competitors. These
included Tekt, a Kiev-based investment bank, which sued the government
to abort the auction, claiming it would pay $37 million, almost three
times as much as Midland. Both this action and the subsequent appeal
were thrown out. In total, Shnaider acquired 93% of Zaporozhstal,
at a cost of about $70 million; the remaining float of 7% trades
publicly. He is said to have recently turned down offers to sell the
mill for $1.2 billion.
Steel is a cyclical industry. Its prices rise and fall subject to the
global vicissitudes of supply and demand. In acquiring Zaporozhstal,
Midland's timing was near perfect--steel prices were on a tear, fuelled
by China's seemingly inexhaustible appetite for the commodity. Shnaider
has used Zaporozhstal's profits (in 2004, it earned $129 million on
$1.3 billion in sales) to leverage a string of Ukrainian acquisitions:
a pipe mill, a coking plant, two factories and 35% of an iron-ore mine.
In the past few years, he's gone further afield, diversifying
Midland's assets by buying up businesses in the former Soviet Union
and its satellite states. There's another major steel plant (the
Red October Works) in Volgograd. There's a controlling interest
in Gumaplast, a Serbian maker of rubber and plastic seals for the
auto industry. There's a Midland shipping division, with a fleet
of 18 merchant vessels carrying freight around the Black Sea and
the Mediterranean. There's control of Carnex (Serbia's largest meat
packer), a controlling interest in UP Stari Grad (it owns two hotels,
several restaurants and cafes in central Belgrade), a majority stake
in the strategically located Danube port of Pancevo. And there's a
growing portfolio in Moscow, including the Arbat Business Centre,
a new condo conversion, and a contract good until 2019 to collect
municipal waste and sell advertising on the containers.
Three years ago, Shnaider made a relatively small wager on Armenia,
spending $37 million to buy the national power grid, a then-bankrupt
electricity distributor. Only a small percentage of the power company's
bills at the time were actually being collected. Midland won approval
to cut electricity to anyone who defaulted on their bills, including
municipalities. The tactic got consumers' attention. "Now," Shnaider
says, "we collect 96% to 98%." The utility further boosted margins
by cutting down on power losses based on theft. "We streamlined
management, increased salaries to inspectors by seven to 10 times to
discourage bribery and gave each regional manager targets to meet. If
they weren't met, he'd be fired. But if he met them, he was rewarded
by much more than his salary." The turnaround complete--the company
made $20 million last year--the utility, like several other Midland
acquisitions bought cheap and revived, has recently been put up for
sale. Asking price: $100 million.
His business acumen notwithstanding, some people will inevitably
wonder how it's possible for a 36-year-old, in a single decade, to
make more than a billion dollars in the former Soviet Union, a world
not easily navigated. The reality, Shnaider insists, is prosaic. On
the Forbes list of billionaires are several Russians who "were much
more successful than me in different industries, because they were
at the right place at the right time"--poised to scoop up privatized
enterprises just as they became available. Similarly, he points out,
there are dozens of internet billionaires around, many of whom made
their fortunes before turning 30. The species is no longer rare.
And if it's true that Boris Birshtein occasionally broke bread with
businessmen and politicians of questionable integrity, Shnaider
has long since distanced himself from his father-in-law. The two
had a serious falling-out in the mid-1990s, and today don't even
speak. Shnaider declined to divulge details, but says that "due to
unfortunate and irreconcilable differences relating to business
policy and family matters, I have not had any contact with my
father-in-law for more than four years." And he adds: "Conflicting
business philosophies brought our professional relationship to an end
more than 10 years ago." Now resident in Toronto, Birshtein declined
to be interviewed for this article.
Val Levitan, CEO of Talon International Development Inc. and Shnaider's
business partner in the Trump Tower, says Shnaider has never mentioned
the tiff with Birshtein. "You have to understand Alex. He does not
discuss things--period. He does not like to gossip." Separated by a
generation, Levitan characterizes Shnaider and Birshtein as emissaries
from two different worlds. "Alex is a North American businessman. Boris
is the old school. But there is a big market in the former Soviet
Union for integrity. You can make a lot of money with integrity,
because it's scarce." The Forbes magazine profile of Shnaider that
accompanied his initiation into the billionaires' club alluded to the
"murky" climate of business in the former Soviet Union. In rebuttal,
Shnaider wrote to the editor: "'Cutting fast deals with strongmen'
is an eye-catching description, but. . .it's doubtful I could have
navigated this 'shadowy' environment, much less prospered in it,
had I not paid the utmost attention to legalities and ethics."
Earlier this year, in the wake of Ukraine's Orange Revolution,
government officials announced that they would review the privatization
of the country's largest steel producer, Krivorozhstal. Although
better offers were said to be on the table, it was sold last year
for $802 million to a consortium that included Viktor Pinchuk,
son-in-law of Ukraine's former president Leonid Kuchma. In April,
two different courts issued contradictory rulings about whether
Krivorozhstal should be deprivatized and renationalized; as of
early May, the issue was still pending. If the deal is overturned,
some observers think it could lead to a re-examination of other
state sell-offs, including Midland's Zaporozhstal. Shnaider isn't
worried. "Midland has no concerns whatsoever regarding the security of
our stake in Zaporozhstal," he said in a prepared statement, e-mailed
a few days after our meeting. "The Group acquired the mill through
fully legitimate and transparent means and sees no reason why this
transaction would be disputed by the current government. Furthermore,
beyond a number of disputed privatization deals, we do not believe
that the sales of any other Ukrainian steel mills will be reversed."
While Eduard Shifrin runs the day-to-day affairs of Midland's
various companies, Shnaider remains fully engaged, attentive to every
detail. When the firm becomes involved in a new venture, says Shnaider,
"I like to understand every aspect of the business. Then, when I'm
comfortable, I take a step back." Is there a conflict between his
instinct to be hands-on and his desire to let go? He laughs. "Huge,"
he says.
The technology attests to that. Shnaider carries two cell-phones and
a BlackBerry and, according to his colleagues, is always reachable,
always in touch. He keeps personal assistants at a distance (although
in Russia and Ukraine, he continues to travel with bodyguards) and
places his own phone calls. "I think he sleeps five hours a night,"
says Levitan. "A workaholic? It's an understatement." Shnaider
ruefully acknowledges the habit. "The only time my mind stops working
on business things is if I watch a really good movie."
Largely for family reasons, Shnaider moved back to Canada from Antwerp
in 1997. He is usually up at 6 a.m. and working--either on the phone
or responding to e-mails. Later in the morning, he works out in his
home gym, showing up at the office, a Midland-owned complex not far
from where he grew up, by noon, and staying "until my wife asks me
when I'm coming home." Shnaider spends about half the year abroad
and finds the jet lag increasingly taxing. "With every trip, I find
myself saying, 'I can't take it any more.'" The result is that the
Shnaiders may relocate yet again--possibly to London or Israel. The
family home has been on the market for several months, listed at
$10.9 million, but as of early May, remained unsold. Is he pulling
up stakes? Shnaider offers a wry smile. "It is possible," he says.
In the meantime, his boyhood ambitions realized--"I always wanted
to reach a certain level, but never imagined I would come to
this level"--his drive seems undiminished. "It could still be done
better," he says. Midland needs to grow internally as much as through
acquisitions, he notes, but money attracts money. "Interesting
people with interesting ideas" approach him, and "one opportunity
leads to another. We never know what opportunity tomorrow will
bring." Evaluating new proposals now consumes an increasing amount
of his time.
According to Levitan, it's this ability to judge, to sift and
analyze information, that distinguishes Shnaider. "Alex never
becomes infatuated with the romance or the dream," he says. "He's very
grounded. He focuses on the facts. In meetings, he often just sits and
listens. He doesn't even ask many questions. And if he doesn't know,
he'll say, 'I don't know.' It's refreshing."
"He's really come out of nowhere," says another friend, who asked
not to be identified. "He's very shrewd, obviously had very good
connections, and he's done a huge amount of wheeling and dealing. But
I have to wonder whether he isn't getting a little too big. We've
seen what happens to other Soviet entrepreneurs who overreach."
Levitan dismisses the concern. "Alex will not stop. It's not really
about the money. It's about the achievement--setting impossible goals
and doing it. He just puts his head down." For Levitan, the Shnaider
story resonates with the classic immigrant theme: the quest to reclaim
the life once known. "An immigrant loses not just roots, but his sense
of comfort," says Levitan, himself an immigrant, from Minsk. "Your
sense of belonging is stripped away and you want to replace it. Couple
that with his academic training, his raw intelligence, and you get
a lot of drive. Incredible motivation. That's Alex."
From: Emil Lazarian | Ararat NewsPress