Russian billionaire Roman Abramovich agreed to buy 7.3 percent of OAO GMK Norilsk Nickel as the two biggest owners of the world’s top supplier of the metal seek to end a four-year feud over control of the company.
Abramovich’s Millhouse LLC investment company will acquire the stake in Moscow-based Norilsk as part of a settlement between shareholders United Co. Rusal and billionaire Vladimir Potanin, Rusal said today in a statement.
Potanin, whose Interros Holding Co. owns 28 percent of Norilsk, will take over as chief executive officer, Rusal said. Rusal, controlled by billionaire Oleg Deripaska, owns 25.1 percent of Norilsk. The agreement increases the prospects for a resolution of the shareholder dispute which in 4 1/2 years has contributed to a 48 percent decline in Norilsk’s London stock from its May 2008 high and stymied investment in expansion.
The agreement marks a “big compromise” for Potanin, because he is weakening his grip on Norilsk, Kirill Chuyko, head of equity research at BCS Financial Group in Moscow, said by phone today. Rusal will gain from larger dividends proposed under the agreement, he said.
Abramovich’s Millhouse will transfer its stake in Norilsk to an escrow account, where it will be matched by equal stakes from Rusal and Potanin, Rusal and Interros said in a joint statement today. Millhouse will control compliance with the partnership agreement by voting those shares, they said.
Norilsk advanced 1.4 percent to 4,876 rubles by the close in Moscow, the highest in almost a month and valuing the company at about $30 billion. Rusal rose 2.4 percent to HK$4.65 in Hong Kong.
Potanin and Deripaska’s agreement was reached in private, according to billionaire Alisher Usmanov, whose Metalloinvest holds 4 percent of Norilsk. The success of the accord depends on Norilsk performing in the interests of all shareholders, Usmanov, who wasn’t party to the talks, said in an e-mailed response to Bloomberg questions. “I’m not sure this principle won’t be broken this time as well,” he said.
A Norilsk board meeting will be called “shortly” for the appointment of Potanin as CEO and to approve the sale of the stake to Millhouse at a market price, Interros and Rusal said in their statement.
Millhouse agreed to buy its Norilsk stock at a level close to the three-month average, three people familiar with the matter said, asking not to be identified as the information isn’t public. That would value the purchase at about $2.2 billion according to data compiled by Bloomberg.
Potanin and Deripaska have battled publicly and in the courts for control of Norilsk since May 2008. The dispute, which involved some of Russia’s richest men, mired the country’s biggest mining company in lawsuits and constrained investment. Rusal has rejected at least three offers to sell out of Norilsk since October 2010, rebuffing an $8.75 billion offer from Norilsk itself for 15 percent in September 2011.
A London arbitration court was scheduled to start hearing a claim from Rusal yesterday against Potanin about an alleged breach of their 2008 shareholder agreement on board representation at Norilsk. That hearing has been delayed until February, Kommersant newspaper reported today, citing an unidentified person familiar with the matter.
John Mann, Millhouse’s spokesman, declined to comment, while Interros’s press service wasn’t immediately available for comments. Rusal’s press office declined to comment on details of the deal with Abramovich.
Rusal has called many times for the ouster of Norilsk CEO Vladimir Strzhalkovsky, claiming the former chief of Russia’s tourism agency lacked mining industry experience. Deripaska also clashed with Potanin over Norilsk’s buybacks, which amounted to $9 billion last year, and the percentage of profit paid out in dividends.
The parties are also discussing increasing dividend payments to at least 50 percent of annual net income, people familiar with the talks said last month.
Norilsk may not only double payments to shareholders from profits, it is also likely to return to holders the more than $2 billion Abramovich will invest in stock as dividends, Alexei Morozov, an analyst at UBS AG in Moscow, said by phone.
The shares Abramovich is buying are part of the 17 percent of the company held by units as so-called quasi-treasury shares. The remainder of those shares will be canceled, Rusal said.
Under the accord, which Rusal’s board approved yesterday, the parties will seek to halt all court actions related to Norilsk and also ensure the “stability of dividends” paid by Norilsk from 2012 to 2014, Rusal said.
“Abramovich should eventually come up as a guarantor of general parity of shareholders’ rights, restoring the balance between Interros and Deripaska,” Mikhail Stiskin, a Sberbank Investment Research analyst, said in a note today.
The dispute “made it difficult” for Norilsk and stopped the company, which also produces half of the world’s palladium, from fulfilling its potential, Pierre Lorinet, chief financial officer of Trafigura Beheer BV, which owns less than 1 percent of Norilsk, said in an interview in Singapore yesterday.
The composition of the 13-member Norilsk board will change to reflect the stake purchase by Millhouse, which will get three seats. Potanin and Rusal will get four each, Rusal said, adding that the latter two will also each nominate an independent director. One of the independent directors will be chairman.
Rusal and Potanin committed to retain their stakes in Norilsk for five years and Millhouse for three years after the date of the agreement, “subject to certain exceptions,” Rusal said, without identifying what these were.
The agreement signals that Potanin won’t be able to increase his stake in Norilsk, something he was intending to do, UBS’s Morozov said.
Should any party breach the accord, the others will be able to buy 7.5 percent of Norilsk from the defaulting party at a 25 percent discount to the average market price for the previous 30 days, Rusal said. Another option available to the non-defaulting parties is to buy 1.875 percent of Norilsk from the side that breached the accord for $1, Rusal said.
Abramovich, owner of the London-based Chelsea Football Club and the largest shareholder in steelmaker Evraz Plc, is a former business partner of Deripaska. The two pooled aluminum smelters to form Russian Aluminum in 2000. Abramovich later sold his half of the company to Deripaska, who then went on to create United Co. Rusal via a 2006 three-way merger with Sual Group and the alumina assets of Swiss commodity trader Glencore International Plc.