SKF AB (Gothenberg, Sweden) has completed its much-anticipated and much-delayed acquisition of the bearing business of VMZ, from the Bulgarian State Privatization Agency.

The former state-run facilities will be renamed SKF Bearings Bulgaria EEOD, and become part of the Electrical Division.

Four facilities in Bulgaria are involved - VMZ's head office and factory in Sopot, along with factories in Kalofer, Karnare and Bogdan.

SKF reportedly paid USD $6.5 million cash up front, with an agreement to spend at least $6 million on improvements and maintain the almost 1,700 workers for at least one year. During the second and third years, SKF will be allowed to slash the bloated state-run employee count by at least 70%, to under 500 workers.

VMZ is a key bearing supplier in Central and Eastern Europe, where SKF hopes to leverage into the growing markets.

Production capabilities are primarily for deep-groove ball bearings, 22mm to 100mm diameter. VMZ also manufactures tapered roller bearings but SKF confirmed to eBearing that tapers are a "very, very small part" of the product line.

Over a year ago, in January 2001, the Bulgarian government approved a plan for privatizing the state-run Vazovski Mashinostroitelni Zavodi Co.

Founded in 1936 for military production, the giant VMZ machine works in Sopot were lately put to manufacturing everything from vacuum cleaners to bicycles, shoes and furniture. On the military side, the production capabilities are extensive and modern, for producing rockets, guided missiles and artillery ammunition.

The Privatization Agency later announced that the bearing production facilities had attracted the most interest from outside investors, but that the state would never relinquish a majority ownership position or agree to allows cuts in the bloated employment. Both of those positions were later abandoned as negotiations progressed and the government's participation changed.

SKF was apparently the first outside company to show interest, and by March 2001 had emerged as the official front runner to acquire VMZ. SKF was reportedly performing due diligence that month.

By April 2001, ZKL (Czechoslovakia) and Kushin Bussan (Japan) had joined the bidding, but with more limited approaches.

In June 2001, the Privatization Agency made its decision and announced that it had chosen SKF. Not only the sole company willing to meet the numerous state-imposed restrictions, SKF also made the largest up-front cash offer.

In August, however, the Agency announced that work on the acquisition was on hold due to unspecified reasons.

In October 2001, the Privatization Agency abruptly announced the VMZ sale was cancelled.

The Agency cited security issues for its moves, but many observers believe the real problems were revelations about the poor condition of the facilities, the emergence of the need for massive environmental pollution cleanups at all the sites, and disagreements over how long the new company must keep the bloated state-run employment level.

Officially, the state said government and military intervention was responsible for stopping the sale - intervening due to security concerns. The true extent and layout of the Sopot facilities had long been considered by Bulgaria to be state military secrets. The sale was supposedly stopped to allow time for the complex to be decommissioned and declassified.

Others now believe, and the Privatization Agency reportedly confirmed, that severe environmental pollution and safety issues throughout the facilities were primarily responsible for stalling the sale. Some outside environmental auditors (who have not seem VMZ but are familiar with the handling of hazardous materials at similar Soviet satellite facilities) have expressed concern that all of the state manufacturing sites are grossly contaminated with military-oriented hazardous waste.

Then, in January 2002, the Agency quietly began to reveal that the SKF acquisition process was moving again.

Now SKF has confirmed the acquisition.

As for the environmental pollution and site cleanup issues, they have apparently been resolved in the intervening months. In response to our inquiry, an SKF spokesman told eBearing, "All the environmental issues stays with the seller, the Bulgarian State. They have assumed the responsibility to take care of all necessary cleaning."