RUSAL Buys Stake in Norilsk Nickel

28.04.2008 (13:21) | RBC

UC RUSAL has completed the purchase of a blocking stake in Norilsk Nickel from Onexim Group, paying with a 14 percent stake in RUSAL and cash, and potentially paving the way for creation of a Russian mining and metals group with a capitalization of about $100 billion.

RUSAL is now expected to buy Potanin’s stake in Norilsk Nickel using the same scheme.

United Company RUSAL announced on Thursday that it had completed the purchase of a 25 percent plus one share stake in Norilsk Nickel, the world's biggest nickel miner, from Mikhail Prokhorov’s Onexim Group. In return, Onexim will get 14 percent in RUSAL and an unspecified cash amount. The parties have not disclosed other details for confidentiality reasons, but a source close to the transaction said that the cash component was worth the value of a 14 percent stake in RUSAL. The total value of the deal is close to the market price of the 25 percent stake in Norilsk Nickel, at between $14 billion and $15 billion.

According to the initial agreement, Onexim was to get an 11 percent stake in RUSAL and cash. Officials at RUSAL said there were strong reasons to change the terms, and Onexim’s managers also pointed to changes in Norilsk Nickel’s capitalization over five months since the agreement was signed. However, Norilsk’s share prices have changed very little since mid-November 2007. Onexim General Director Dmitry Razumov said he was happy with the transaction terms.

As a result, Oleg Deripaska’s holding in RUSAL shrank from 66 to 56.76 percent, stakes held by SUAL’s shareholders dropped from 22 to 18.92 percent, and Glencore’s stake declined from 12 to 10.32 percent. Onexim will be RUSAL’s third largest shareholder, authorized to send one representative to RUSAL’s Board of Directors, with Dmitry Razumov seen as the most likely candidate. At the same time, Onexim’s managers will not take part in RUSAL’s operational management.

UC RUSAL plans to get its representatives elected to Norilsk’s Board of Directors at the company’s annual shareholders meeting in late June. Four candidates have already been nominated: Viktor Vekselberg, Oleg Deripaska and Alexander Bulygin, as well as Tye Burt, as an independent director. According to the source, RUSAL will also delegate someone from Onexim to the Norilsk Board, most likely it will be Mikhail Prokhorov. “This will strengthen RUSAL’s position in Norilsk Nickel,” the source told RBC Daily. RUSAL hopes to get three or four seats on the Norilsk Board.

“RUSAL intends to play an active part in implementing Norilsk Nickel’s development strategy, building relations with the company’s management and other shareholders based on partnership principles and boosting the company’s value in the interests of all shareholders,” General Director Alexander Bulygin was quoted as saying. RUSAL’s officials said they viewed the acquisition as a step towards a possible merger of the two companies: “The potential merger would have a huge synergy effect, it would be in the interests of all shareholders as it is dictated by the industrial logic.”

Denis Morozov, General Director of Norilsk Nickel, told RBC Daily that the company had been prepared to accept RUSAL as a shareholder. “At this point we do not have information about RUSAL’s further plans,” he said. Apparently, RUSAL is expected to come up with the merger proposals.

But RUSAL will have to go public first, experts say. It would be difficult for the aluminum group to find enough cash to buy the rest of Norilsk Nickel’s shares. It will be able to pay with its own shares only after an IPO, which is scheduled for 2009.

Norilsk Nickel’s managers said they would be prepared to discuss the merger if it was based on their company, but they said no merger offers had come from RUSAL yet. Meanwhile, an alliance with Norilsk is also eyed by Alisher Usmanov’s Gazmetall, which is in talks with Potanin. Negotiations with Usmanov are continuing, according to Denis Morozov.

Dmitry Smolin, at Uralsib, believes that RUSAL has a better chance, and it does not have to go public. “Deripaska will purchase the stake from Potanin on terms similar to those used in the deal with Prokhorov. This scenario looks likely given the reputation of Oleg Deripaska, who has never been reconciled to the role of a minority shareholder, and the economic feasibility for RUSAL,” he reckons. Interros refused to comment on the issue.

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