TNK Billionaires Hire Rothschild for Loan to Buy Out BP

TNK-BP’s billionaire shareholders, who own half of the Russian oil company through AAR, are seeking to raise at least $20 billion, in part to help fund an acquisition of BP Plc’s 50 percent stake.

AAR hired Rothschild Group to organize a loan, which will probably be structured in such a way that TNK-BP is the borrower, rather than AAR, according to AAR Chief Executive Officer Stan Polovets. The partners haven’t yet decided what price they’ll offer for the shares, he said today by telephone.

AAR, which represents Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, last week decided to make an all-cash bid for BP’s entire 50 percent stake, rather than the half it sought earlier. BP plans to exit from TNK-BP after clashing with AAR over strategy and failing to team up with Russian oil producer OAO Rosneft following a legal challenge from AAR.

Rosneft, headed by Russian President Vladimir Putin’s former deputy for energy, Igor Sechin, is also seeking to buy out BP from TNK-BP, and is looking for as much as $15 billion in loans, two people with knowledge of the plans said Sept. 19. TNK-BP’s listed unit, which doesn’t include its overseas assets, has a market value of about $40 billion.

State Role

The bidding may pit Sechin, who helped turn Rosneft into Russia’s biggest oil producer with assets bought from bankrupt Yukos Oil Co., against Prime Minister Dmitry Medvedev’s government, which is seeking to reduce the state’s presence in business.

“The state shouldn’t expand its direct participation in the economy, including through having state companies acquire private companies,” Deputy Prime Minister Arkady Dvorkovich has said, according to his press secretary, Aliya Samigullina. “The government has no objections to AAR increasing its stake in TNK-BP.”

TNK-BP dropped as much as 2 percent to 82.70 rubles in Moscow trading, and was at 83 rubles as of 5:17 p.m. local time. BP rose 0.2 percent to 437.45 pence in London.

BP will invite formal offers in mid-October, a person with knowledge of the plan said last week, asking not to be identified because the matter is confidential. That will fall near the end of a 90-day period during which BP must negotiate in good faith with AAR. BP is allowed to hold talks with others during the period and may continue talks with AAR thereafter.

Investor Dispute

BP and AAR went to arbitration in 2011 over the U.K. explorer’s plan to form an alliance with Rosneft. The deal failed after the billionaire partners blocked a $7.8 billion share swap and Arctic exploration accord, arguing that BP was required to pursue all opportunities in Russia exclusively through TNK-BP.

TNK-BP’s infighting has seen both sides jostle for control. BP and Rosneft offered AAR $32 billion for its stake last year, which the billionaires turned down. In July, AAR proposed buying half of BP’s stake based on a market price, with a possible discount that accounted for potential damages.

The arbitration over the failed Rosneft alliance continues, with a tribunal scheduled to meet mid-November to hear AAR’s claims that BP violated their shareholder agreement, people with knowledge of the matter said last week. AAR is also seeking an indication of damages of $1.

Legal Report

TNK-BP’s board was presented with a legal counsel’s report by management in December that assessed the company’s chances of suing BP for billions of dollars in damages, people said at the time. The board hasn’t met since then, after two of TNK-BP’s independent directors resigned.

Should BP sell its TNK-BP stake to Rosneft, the London-based company has said it may use the proceeds to buy shares in the state-owned oil producer from the government, while the state would maintain control. BP’s CEO Bob Dudley told investors in July they should be open to a combination of cash and shares for TNK-BP, which has paid BP $19 billion in dividends since 2003 and accounts for a quarter of its global output.

The loan agreement with Rothschild was reported earlier by Kommersant, which cited people it didn’t identify.

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