Daido Metal Corp. (Japan; TSE:7245) announced a surprise move to acquire ZMZ Bearings, Russia's largest automotive engine bearing manufacturer, from Severstal Auto Holding.

ZMZ manufactures engine bearings, bushings and washers.

The USD $20 million acquisition is reportedly being financed $15 million directly by Daido Metal, and a $5 million grant by the European Bank for Reconstruction and Development (EBRD). The EBRD's board of directors has set a final vote on the deal on September 18.

Properly named ZMZ Podshipnik Skolzheniya (ZMZ Thrust Bearings), the company had been a division of Zavolzhsky Motorny Zavod (ZMZ, or Zavolzhsky Motor Plant), appropriately located in Zavolzhsky. Parent ZMZ Motor manufactures gasoline and diesel engines for the domestic Russian auto and truck industry.

ZMZ Motor spun off ZMZ bearings and several other ancillary operations in a 2003-2004 restructuring, later writing off the value of its holdings completely and turning over operations to parent Severstal Auto Holding.

ZMZ bearings are in ZMZ-manufactured engines installed by Russian automakers Gorky Automobile, Pavlosky Bus, and UAZ trucks.

The ZMZ companies are part of Severstal Auto Holding. Severstal said it is divesting ZMZ's bearing manufacturing essentially as non-core operations in order to better focus its resources on other programs.

A Severstal spokesman said: "Daido Metal will help the company to acquire new technology and widen the range of clients."

The EBRD also indicated its support of the acquisition is based on Daido's promise to modernize and expand ZMZ's bearing manufacturing operations, while extending the sales operation internationally.

EBRD went described the project: "The proposed project assists the entry of a high quality auto parts supplier into Russia. The project will promote technology and skills transfer from the Sponsor to the Company, as well as improvement in operational efficiency and product quality. The success of the project may encourage other international automotive suppliers to enter Russia and assist in the restructuring of local companies in the automotive supply sector, thereby increasing local competition and aiding in the development of a market economy in Russia."

The European Bank for Reconstruction and Development project summary is [ here ].

The European Bank for Reconstruction and Development was established in 1991 when communism was crumbling in central and eastern Europe and ex-soviet countries needed support to nurture a new private sector in a democratic environment. Today, the EBRD uses the tools of investment to help build market economies and democracies in countries from central Europe to central Asia. The EBRD is the largest single investor in the region and mobilizes significant foreign direct investment beyond its own financing. It is owned by 61 countries and two intergovernmental institutions. But despite its public sector shareholders, it invests mainly in private enterprises, usually together with commercial partners. [ more about the EBRD here ]