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Potanin’s Offer to Buy Out Rusal May Mark End to Feud

Oct. 25 (Bloomberg) -- Russian billionaire Vladimir Potanin’s offer to buy United Co. Rusal’s stake in OAO GMK Norilsk Nickel for $9 billion is “the beginning of an end” to their shareholder feud, said UralSib Financial Corp.

“One of the two sides has to leave,” said Chris Weafer, chief strategist at the Moscow-based brokerage. “There is no other solution available. We have now clearly entered a more proactive phase in this conflict.”

Potanin wrote to Rusal Chairman Viktor Vekselberg on Oct. 22 urging him to discuss selling Rusal’s 25 percent in Norilsk, Russia’s biggest mining company. Rusal said in an e-mailed statement it won’t sell its “strategic” investment. Potanin, whose Interros Holding Co. holds 25 percent of Norilsk, said he viewed Rusal’s statement as “taking a pause” to consider it.

Norilsk rose as much as 3.6 percent to 5,659 rubles in Moscow, the highest intraday price since May 4. The shares were trading up 2.8 percent at 5,616.43 rubles at 5:29 p.m., valuing the company at 1.07 trillion rubles ($35 billion).

A feud between Potanin and Oleg Deripaska’s Rusal dating back to 2008 reignited after a June election of the Norilsk board that gave Rusal three seats to Potanin’s four. A majority of Norilsk investors on Oct. 21 voted against Rusal’s motion to re-elect the board in a blow to Deripaska’s ambitions to boost his influence.

Pressure on Rusal

Potanin has clashed with Deripaska over how Moscow-based Norilsk manages cash and operations. Deripaska wants bigger dividends to help Rusal pay off about $13 billion of debt and a management overhaul, and has offered to buy Potanin’s Norilsk stake.

“Potanin expects that the offer of this size will put pressure on Rusal from its creditors to consider it seriously,” Weafer said by telephone from London.

Vekselberg and fellow Rusal shareholder billionaire Mikhail Prokhorov “are tired of the conflict” and ready to discuss a deal, Vedomosti reported today, citing two unidentified people.

Interros will be ready to make a binding offer to prove its intentions are “serious,” Potanin told reporters Oct. 22. Interros offered to start talks at a $9 billion valuation for Rusal’s stake in Norilsk, more than the $8.5 billion Rusal paid for it in 2008, Potanin said.

‘Derisory’ Offer

Rusal’s investment “is not for sale at any price and is viewed as a critical component of Rusal’s future strategy of diversification,” said Nathaniel Rothschild, chairman of EN+ Group, billionaire Deripaska’s investment company, which owns 47 percent of Rusal. Potanin’s offer “is derisory,” while EN+ is “open to a merger in the future,” according to a statement distributed by EN+ on Oct. 23.

Neither Potanin nor Rusal will “likely want to sell to the other but, having boxed each other into a stalemate situation, it is a reasonable assumption that the state will press for a resolution” with state-run banks, including VEB, or “state proxy investors” as possible buyers, Weafer said.

The conflict will continue to put pressure on the share price in the short-term, Troika Dialog analyst Mikhail Stiskin said in a note to investors today. Rusal may make a counter-offer, using the balance sheets of shareholders Deripaska, Prokhorov, Vekselberg and Glencore International AG, as the company itself can’t make any investments, he said. Interros is unlikely to take the offer, he said.

‘Blessing’ for Rusal

“The news is positive for Rusal - it shows that the company, unlike in the past, can now monetize its investment in Norilsk Nickel if it wants to,” Stiskin said. Should Rusal decide to sell within 12 to 18 months, “this would be a blessing” that will help it repay the debt, he wrote.

Interros, which won’t seek more than 30 percent of voting interest, Norilsk management and the mining company’s pension fund are among investors willing to work together on the buyout, Potanin said. Potanin backs Norilsk Chief Executive Officer Vladimir Strzhalkovsky’s team and wants to curb Rusal’s control.

“Using Norilsk’s balance sheet is effectively a buyback,” and minority investors should have an opportunity to tender their stock, Potanin said, adding that Interros could abstain from tendering shares in these circumstances.

Russian officials have said the government would intervene should the shareholder conflict threaten operations at Norilsk, which is the world’s biggest nickel producer.

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net

To contact the editors responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net.

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