updated 5/10/2007 11:25:34 AM ET 2007-05-10T15:25:34

A Russian industrial conglomerate will invest $1.54 billion in auto parts supplier Magna International Inc., raising speculation that the Canadian company is generating cash for a bid to buy Chrysler.

Magna, just hours before the start of its annual shareholders meeting, said that Russian Machines, a unit of privately held Russian industrial conglomerate Basic Element, would make the investment by indirectly acquiring 20 million Class A Subordinate Voting Shares of Magna.

Aurora, Ontario-based Magna said it will use the investment to boost its efforts in Russian and other automotive markets.

But Rich Morrow, an analyst with Jennings Capital Inc. in Toronto who follows Magna, said it’s likely the company is raising money for its bid to buy the struggling U.S. arm of DaimlerChrysler AG.

“I would speculate that this is related to Chrysler,” he said Thursday.

The company did not mention Chrysler in its news release announcing the investment other than to say a transaction is possible.

Magna has confirmed its interest in buying Chrysler, and many U.S. analysts have named the Canadian company as the front-runner in the bidding along with partner Onex Corp., a Canadian investment conglomerate.

Analysts have speculated that Magna would submit a bid of $4.7 billion for Chrysler, which last year lost $1.5 billion.

Magna spokeswoman Tracy Fuerst deferred comment, saying Chairman Frank Stronach would meet with reporters after Thursday’s annual meeting.

Buzz Hargrove, president of the Canadian Auto Workers union, said that the Russian investment fits with Magna’s interest in buying Chrysler as well as reports that the supplier is working with Onex on a proposal.

“I don’t think there’s any question that Magna is trying to put together a proposal that would include partners,” Hargrove said. “It’s just another player. ... We’re going to wait and see how it unfolds.”

Under the agreement with the Russian investor, Magna would remain a Canadian company with shares listed on the Toronto and New York Stock exchanges.

Magna said in its statement that it will use the investment to boost its efforts in the Russian and other automotive markets. Russian Machines already controls Russia’s second-largest automotive company, OAO GAZ, which makes cars, buses, minivans and trucks.

Magna has a joint venture with GAZ to produce some car parts. It also has a partnership deal with Russia’s largest carmaker by volume, OAO Avtovaz, that could see the creation of a local joint venture.

“Our partnership will accelerate Magna’s growth in Russia and surrounding countries, markets that we see as holding significant opportunities for us,” Stronach said in the statement.

Russia is one of the world’s fastest-growing auto markets and is increasingly being targeted by the giant global manufacturers, looking to offset stagnant markets in the United States and Europe.

Morrow said the investment would significantly dilute Magna’s earnings per share, so the company must be raising money for something major.

But he also said Stronach is a believer in the economic turnaround of Eastern Europe, especially in Russia.

After the deal is complete, Magna’s controlling shareholder, the Stronach Trust, and Russian Machines will be allowed to nominate six board members including at least four independent directors. Magna’s co-chief executives also will be nominated to serve as directors.

Magna and Basic Element didn’t say how large a stake Basic Element would get in Magna as a result of its investment.

The transaction, which was approved by Magna’s board, is subject to court, regulatory and shareholder approvals.

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