The sale of Baltiysky Zavod to OPK falls in line with the Russian government plans to push consolidation in the defense industry. St. Petersburg industrial conglomerate IST Group announced recently a sale of its 88 percent stake in shipbuilder Baltiysky Zavod to OPK, which owns rival Severnaya Verf. The deal ends years of often fierce competition and gives OPK the opportunity to create a shipbuilding powerhouse. It is expected that the two companies, which complement each other well, may after forming the new entity turn into a very attractive business with $500 million in annual sales.

OPK is gaining a choice asset with its acquisition of Baltiysky. The company's order book through 2008 stands at more than $600 million, including icebreakers for Russia and cargo ships for Sweden. More importantly, the yard is now in the running to build three frigates for the Indian Navy after completing the delivery of the first three frigates to India last year under a contract for nearly $1 billion.

The OPK deal falls in line with the Russian government plans to combine assets in the defense industry into holdings. Boris Alyoshin, head of Russian Federal Industry Agency, stated recently that the government was considering setting up two shipping holdings: one to unite submarine makers and the other bringing together surface-ship builders. He also said that the surface-ship holding would be created on the basis of Severnaya and Baltiysky.