Special Report

THE RUSSIAN WARRIOR

Shnaider’s Heinz mixture of enterprises now extends into 34 countries and employs more than 50,000 people

Peter C. Newman May 23 2005
Special Report

THE RUSSIAN WARRIOR

Shnaider’s Heinz mixture of enterprises now extends into 34 countries and employs more than 50,000 people

Peter C. Newman May 23 2005

THE RUSSIAN WARRIOR

Special Report

PETER C. NEWMAN

Shnaider’s Heinz mixture of enterprises now extends into 34 countries and employs more than 50,000 people

WHEN I WALKED into Alexander Shnaider’s room in London’s luxurious Lanesborough hotel, adorned with Regency furniture and wall hangings, the suite was awaft with the sweet smell of money. It’s the kind of luxury hostelry, located between Hyde Park and Buckingham Palace, where guests have personal 24/7 butlers trained to unpack their bags and coordinate their social itineraries.

My host was the perfect prototype of a Russian billionaire: built like one of those massive pillars that support country churches, he smiled a lot and in faultless English spoke with the smooth purr of a Slavic Dr. Phil, occasionally lapsing into the patois of Volga boatmen. Yet, he seemed less than comfortable talking to a journalist, which he seldom does.

This definitely is a warrior. His peregrine eyes can kill. At 36, he is too young to have fought any wars, but he carries firepower in his brain and his calm manner is deceptive.

I liked him instantly. We are, after all, both Slavs (me from Czechoslovakia and he from St. Petersburg) and both sailors (he, the owner of a 170-foot Benetti mega-yacht, with a crew of 12; and me the proud skipper of an ancient 42-foot Sea Tiger, with a crew of one nervous wife). Going in, I knew next to nothing about him, since next to nothing has been written to explain how he arrived in Canada from Israel at age 13 in 1982 with no prospects, yet earlier this year joined Forbes magazine’s authoritative billionaires list at number 488 (estimated wealth, US$1.4 billion). The least known of Canada’s 17 billionaires, he ranks behind processed food magnate Wallace McCain and just ahead of Stephen Jarislowsky, the Montreal investment guru. He says revenues of his private trading company, Midland Resource Holdings Ltd., which is registered in the Channel Islands tax haven of Guernsey, exceeded US$4 billion last year. His Heinz mixture of enterprises now extends into 34 countries and employs more than 50,000. Yet he is just starting his run, and says he has many more ideas than time to pursue them. One aspect of his current business plan is definite: no shareholders. Ever. “I want to concentrate on my business, not on pleasing shareholders,” he told me.

He spent his youth helping in his parents’ North Toronto deli-

catessen, delivering newspapers and eventually graduating from York University with a degree in economics. In 1989, as the Soviet Union collapsed, he left to work in a steel trading house in Zurich, then set up his own shop in Belgium, but didn’t make any real money until he moved to Ukraine, where, among other things, Shnaider would import US$40 microwaves and trade them for US$150 units of hot-rolled steel. Then he sold the coils to Asian traders and eventually (with English partner Eduard Shifrin, who has a doctorate in metallurgical engineering) managed to win control of Ukraine’s fourth-largest steel mill.

Steel was not a trade whose details are suitable for family magazines; at least seven steel executives were assassinated in Ukraine during the 1990s. Shnaider kept out of trouble, mainly by smiling a lot and hiring everybody’s relatives. Now, he is one of Eastern Europe’s biggest steel traders.

Recently, he has been acquiring companies in any field that strikes his fancy, among them: two hotels, a chain of bakeries and an abattoir in Belgrade; a fleet of 18 merchant ships; an ornate office building and a casino in the Arbat pedestrian mall in downtown Moscow; the Red October steel mill in Volgograd and a Siberian meat processing plant; and a steel mill in Montenegro.

Then there was the power grid that lights up most of Armenia, which he bought as a lark for $24 million while on a brief visit in 2002, though he knew nothing about the business which was losing an annual $64 million and carried $40 million in debt. He almost set off a revolution when he cut off electricity to customers who refused to pay their bills. He has since turned the troublesome company around and is negotiating to sell it for about $125 million.

His sources of financing include credit lines from Fortis, Belgium’s largest financial services firm and a US$300 million bond offering, underwritten by J.R Morgan Chase and Deutsche Bank. His galloping expansion has never been based on strategic considerations that add up to a recognizable pattern. He listens to his gut. The courage of the early morning always wins out over more closely reasoned motivations.

He paused as the morning coffee grew cold between us as I asked

how he could operate successfully in Russia, where President Vladimir Putin throws industrialists in jail. “I survive by never talking or even thinking about politics,” he told me. “That’s not my game.” After our conversation had gone on for two hours or so, I realized that nearly every question I asked had a dozen possible answers, only one of which I was being offered. While he seemed very open, Shnaider had the self-contained manner of a confident mountaineer. Most climbers say they are inspired to scale a peak because it is there, but I prefer the cheeky riposte of American Stacy Allison, the first woman to scale Mount Everest: “Because Em here!” That was exactly the feeling I had about Shnaider. That he does things because he finds himself somewhere with an hour to spare, as in: “Here I am in Armenia, why not grab the electricity system?” Or, “Here I am in Belgrade and can’t get a decent sandwich, think I’ll buy a couple of good restaurants.” Or more likely, “I’m back in Toronto, and it still doesn’t have a five-star hotel. Let’s build one!” Construction of that 70-storey, 374-room hotel/condo Trump International Hotel & Tower, located in the heart of Toronto’s financial district, will be financed mainly by Shnaider—although the development is named after Donald Trump, who holds some of the equity and will manage the project, presumably firing bellhops. It will include 35 floors of super-luxury condominiums, with penthouse suites selling for up to $15 million. They will feature floor to ceiling windows, grand staircases and Scheherazade foyers. “People will find our architectural vision, combining beauty, opulence and splendour, extremely compelling,” Shnaider promises. This multi-million-dollar project could be his largest and riskiest deal; he claims that 30 per cent of the suites (worth $100 million) have already been sold. Construction is due to start next year.

The test will be whether there are enough Toronto customers who can support his standards of luxury. As well as his yacht, Shnaider owns a fleet of cars including a Bendey Amage, listed at US$234,000; a Mercedes-Benz SLR McLaren, the first series production carbon fibre car; a couple of spare Ferraris, and a Mercedes-Benz AMG Geländewagen, the German version of a Hummer. He flies aboard his own Bombardier Global Express, lives with his Russian wife,

Simona, and their three daughters in a North York mansion and collects vintage watches. When we met, he was wearing an Audemars Piguet that retails for US$13,500, one of his cheaper watches.

His work habits produce the creative tension which allows him to thrive. He seldom talks on less than two telephones simultaneously, while he also consults with a visitor seated on the other side of his desk. Midland, his holding company, employs 200 managers, but less than 20 report directly to him.

Shnaider’s big problem is finding the time to ride herd over his empire. “Many of our management choices are made very rapidly,” he admits. “The minute we start thinking too much about any business opportunity, we always find a reason not to go ahead. So we usually decide on the basis of our gut feelings and test what could happen in the worst possible scenario. I believe in quick decisions, and going with the flow. Intuition can mean everything. We’ve made major decisions without even meeting the people involved. In 1997, a man I had traded with but never met bought a steel mill

in Macedonia, then didn’t have the money to close the deal. He needed $20 million by Monday, and it was Saturday when he called me. We did it, and I met him for first time when we handed him the money. At the end of it, we hadn’t lost anything, but made a good friend.”

Like most entrepreneurs, Shnaider is into numbers, and his favourite is 360 million. That’s the average television viewing audience for Formula One races, arguably the world’s highest-profile sport. Shnaider has been fascinated by the prospect of owning an FI team for years, and earlier this year he purchased the Jordan team for $61 million. He has hired former Russian president Boris Yeltsin’s grandson (also named Boris) to be his marketing director for a typically daring project: holding a full-scale Formula One rally in Moscow next year. City Mayor Yuri Luzhkov is on side. “There are many talented aerodynamics designers in Russia who think outside the box, and we will use them to improve our team,” he told me.

The Jordan venture will cost Shnaider about $122 million annually to maintain, but he sees the investment as an excellent branding opportunity, especially if he branches out into con-

sumer goods. Shnaider will race his cars at Circuit Gilles Villeneuve in Montreal this summer.

The aptly named Danny Ozark, the former manager of baseball’s Philadelphia Phillies, defined the sport this way: “Half this game is 90 per cent mental.” That’s Shnaider. He is part of the new breed, which is 90 per cent mental and 10 per cent bluster, that is taking over the Canadian Establishment. This new wave regards the world as its sandbox and lives as much for the game as for the prize. It’s a brave new tribe of free agents whose reputational power beats all. They deal, therefore they are. The colour of your skin no longer matters, and neither does your religion or where you came from. All that counts is what you know that your competitors don’t, whose imagination and pocketbook you can tickle and tap. What network you can set up in the next 24 hours to cement a deal.

The members of this new establishment are much more compelling than their predecessors. And Alexander Shnaider will be one of its stars. 171