RUSAL Ñritical of Norilsk Nickel
28.05.2008 (16:43) | RBC
UC RUSAL, which closed the acquisition of a 25 percent stake in Norilsk Nickel last month, is preparing for the company’s annual general shareholders meeting, scheduled for June 30.The new shareholder appears to have many questions over Norilsk’s development strategy. Meanwhile, experts say RUSAL’s criticism is aimed at persuading Norilsk’s minority shareholders to elect RUSAL’s representatives to the Norilsk Nickel Board of Directors.
Yesterday RUSAL said publicly what it thinks about its new asset, for the first time since the acquisition. Artyom Volynets, RUSAL’s Director for Strategy and Corporate Development, told Dow Jones that his company did not see Norilsk’s plans to increase the company’s value, despite plenty of opportunities to do so.
He drew parallels between Norilsk Nickel and RUSAL, which has achieved far greater results, according to Volynets. One reason for RUSAL’s concern is that Norilsk lacks production development plans, while RUSAL is going to boost its aluminum production by 50 percent, or 2 million tonnes, over the next five years. “We are surprised that Norilsk Nickel has no such growth plans,” Volynets stressed.
RUSAL also has questions about the distribution of Norilsk Nickel’s cash flows. The aluminum company is also worried about Norilsk’s insufficient investment in organic growth and mergers and acquisitions.
In this situation, RUSAL cannot grasp Norilsk’s motivation for the acquisition of LionOre, a Canadian nickel producer. “We would like to understand how the newly acquired assets create synergy,” Volynets says, again referring to his company as an example: the merger of Oleg Deripaska's Russian Aluminum, smaller domestic rival SUAL and Swiss-based commodities trader Glencore International AG in March 2007 produced a synergic effect estimated at $500 million. In view of this, RUSAL wants to discuss Norilsk’s dividend policy. “The philosophy is simple: you have to either invest money or return it to shareholders,” Volynets argued.
He also criticized Norilsk Nickel for its low business diversification level, non-core energy assets and a poor environmental policy. Volynets said RUSAL’s management had not yet had an opportunity to discuss the issues with Norilsk Nickel. Despite all Norilsk’s problems, RUSAL remains interested in its new acquisition, according to Volynets. But he did not say whether RUSAL planned a merger with Norilsk Nickel.
Norilsk Nickel’s officials confirmed that RUSAL had not discussed the problems with Norilsk’s management. Their company, they said, was open for dialog, and was “ready to discuss corporate development plans and other issues of interest to shareholders, as well as all other questions for the company’s management,” a source in Norilsk Nickel told RBC Daily. He noted that RUSAL had not disclosed its “unchanged plans” for Norilsk.
Meanwhile, RUSAL has announced its ideas for the composition of Norilsk Nickel’s Board of Directors. RUSAL claims the main role among Norilsk’s minority shareholders. The Norilsk Nickel Board of Directors is currently chaired by Andrei Klishas, Deputy CEO of Interros. RUSAL suggests that the new Board should include three representatives from RUSAL, three representatives from Interros (controls about 30 percent of Norilsk Nickel) and three representatives from minority shareholders. “This will ensure the balance and respect for the interests of all the three shareholder groups,” RUSAL said, nominating four candidates: Viktor Vekselberg, Oleg Deripaska and Alexander Bulygin, General Director of UC RUSAL, as well as Tye Burt, CEO of Canada’s Kinross Gold Corporation, as an independent director.
Ksenia Dudoladova, an analyst at UFG Asset Management, says RUSAL’s criticism is motivated by its desire to lobby for changes in Norilsk Nickel’s Board of Directors. The critical reports are aimed at convincing minority shareholders (accounting for the bulk’s of Norilsk’s investors) that the election of RUSAL’s representatives to the Board of Directors would boost the company’s corporate governance efficiency. This was in line with RUSAL’s strategy, Dudoladova added.
For his part, Pavel Baranov, head of the united legal department of Russian Funds, said RUSAL could claim no more than two seats on the Board, and it needed the support of minority shareholders to get more seats.
Norilsk’s shares dropped 5.84 percent to $27.74 per share on the London Stock Exchange following Volynets’ remarks.
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