Business Standard

Explainer: Russian billionaires risk "shootout" in battle over nickel giant


Reuters MOSCOW
By Polina Devitt
MOSCOW (Reuters) - Two of Russia's richest men could trigger a complicated auction known as a "shootout", in a bid to end their long-running battle for control of mining giant Norilsk Nickel (Nornickel) .
After a five-year peace deal ended in December, the power struggle between two major Nornickel shareholders, Vladimir Potanin and Oleg Deripaska's aluminium giant Rusal <0486.HK>, resurfaced earlier this month.
Potanin offered to buy a stake owned by a third businessman, Roman Abramovich. Abramovich has a history of good relations with President Vladimir Putin. Sources say he was installed as a minority shareholder in 2012 by the Kremlin as part of the deal to keep the peace. The Kremlin has always denied this.
Deripaska tried to block Potanin from buying Abramovich's stake as it would have given his rival, who is already Nornickel's chief executive and largest shareholder, even more control of the company.
On Friday, the battle took a new turn when Rusal said it would ask shareholders for permission for a mandate to authorise the board to take part in a potential shootout.
The terms of the shootout, a price auction between the two parties, were agreed as part of the 2012 deal and could be used as of December.
The losing side would be forced to sell part or all of its stake to the winner, effectively giving control of the $33 billion company, the world's top nickel and palladium producer, to their rival.
Representatives of Deripaska and Rusal, Potanin and Nornickel and Abramovich's Millhouse declined to comment.
Deripaska and Potanin have periodically been at loggerheads since Deripaska's Rusal bought a stake in Nornickel in 2008. Rusal currently owns 27.8 percent of Nornickel and Potanin has 30.4 percent.
Chelsea soccer club owner Abramovich and his partners hold a 6.3 percent stake in Nornickel, of which 4.2 percent is owned via a Cyprus-based company called Crispian.
The peace deal involved a five-year lock-up period, during which no party could sell a chunk of their Nornickel stakes.
The Kremlin has said it was following the case but was not involved.
"Taking into account the size and the social and economic significance of this company, of course, the Kremlin is following the development of the situation with the management," Kremlin spokesman Dmitry Peskov told reporters on Monday.
He said the Kremlin should not be involved in shareholder relationships.
The deal between Rusal, Potanin and Abramovich says that if one firm wants to sell, they have to give other stakeholders first right of refusal. This is not related to the shootout process which can only be triggered by Rusal and Potanin.
Potanin's Cyprus-based firm Bonico made an offer on Feb. 2 to purchase a 4 percent stake in Nornickel from Abramovich's Crispian for $1.5 billion.
Crispian sent Rusal and Potanin's other Cyprus-based firm - Whiteleave - a letter informing them of the offer and the chance to buy the stake on the same terms. Both Whiteleave and Rusal say they accepted Crispian's offer.
However, Rusal says Crispian's offer is not a valid notice because Bonico is an affiliate of Whiteleave. Rusal is seeking an injunction in a London court to block any deal. Whiteleave says there is no reason to grant an injunction.
The court on Feb. 16 agreed to delay the injunction hearing until the week of March 5 but then said that another hearing would be held on Feb, 27. Lawyers on all sides asked the court to complete the trial before June.
Whiteleave has secured $1.5 billion in debt financing for the possible deal with Abramovich, but says Rusal's court application will mean losses for Whiteleave if the proceedings go on for a long time, court materials obtained by Reuters show.
Crispian has agreed not to transfer its shares in Nornickel as part of the offer until the hearing is over.
Tensions could end now if Potanin buys the 4 percent stake in Nornickel from Abramovich or if Potanin and Rusal share the 4 percent stake between them. According to the agreement between the three companies, Potanin and Rusal could share Abramovich's stake if they both want to buy it.
But Rusal and Potanin could also both trigger the "shootout". Analysts still say this is unlikely to happen because the agreement is vague and requires raising large capital.
"We regard an actual sale as highly unlikely as the required financing ($11-15 billion) looks excessive even for the state-owned banks, and would require political will, which, in our view, is uncertain," analysts at Aton said on Thursday.
But Rusal's request to shareholders on Friday for permission "which shall authorise the board to effect the potential shootout transaction as and when appropriate" appears to put the idea firmly on the table.
According to the shootout agreement, the starting price, would be based on the six-month average price of Nornickel shares plus 20 percent.
The maximum price at which Rusal might make an offer to buy Potanin's stake in Nornickel is $320 per Nornickel share, Rusal said in the statement on Friday. The minimum price at which Rusal could consider selling its stake in Nornickel is $220.8 per share.
However, Rusal's Board "would suggest that" Rusal should not accept an offer to sell its stake in Nornickel to Potanin for less than $320 a share, it added in the statement.
"We think that the goal of setting the price level is to deter Interros (a holding company which manages Potanin's assets) from making an unfair - in Rusal's view - offer first, rather than prepare for a buyout offer to Interros which we think is overwhelming for Rusal," analysts at VTB Capital said on Monday.
Rusal declined to comment. The majority of shareholders should vote in favour of the approval to grant the mandate.
Analysts have also suggested that partners could help Deripaska with a shootout purchase if needed.
Trade and mining giant Glencore also owns a stake in Rusal and is buying aluminium from the latter. However, Nornickel, selling the bulk of its metals under long-term contracts with end users, has been avoiding working with Glencore. "Given the attractiveness of Norilsk Nickel's commodity basket (nickel, cobalt, platinum group metals), we believe it could well be the case that Rusal may fund the stake acquisition (in a shootout) with the support of a company such as Glencore that would like to trade Norilsk Nickel's metal," analysts at Sberbank CIB said.
Glencore declined to comment.
Rusal bought its stake in Nornickel from Potanin's former partner, Mikhail Prokhorov in 2008.
During the conflict with Potanin, Deripaska refused to sell his stake in Nornickel, angering his Rusal partners - Prokhorov and Viktor Vekselberg and straining their relationship.
On Feb. 19, Prokhorov agreed to sell a 6 percent stake in Rusal to a consortium led by Vekselberg. The sale will cut Prokhorov's stake in Rusal to zero and will increase the stake of Vekselberg in Rusal to 26.5 percent.
Glencore and Vekselberg's representative declined to comment about whether they would vote in favour of granting the shootout mandate to Rusal's board. A representative of En+ , Deripaska's company and the largest shareholder in Rusal, also declined to comment.
(additional reporting by Anastasia Lyrchikova, Barbara Lewis and Donny Kwok; editing by Pratima Desai and Anna Willard)

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First Published: Feb 27 2018 | 1:55 AM IST

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