Two is company, threes a crowd. (lr) Oleg Deripaska, Vladimir Potanin and Alisher Usmanov
Rusal, the aluminium company controlled by Oleg Deripaska, has been embroiled in an escalating dispute over Norilsk with fellow shareholder Vladimir Potanins Interros since acquiring a 25% stake in 2008. The latest round of hostilities began in June last year, when Potanin persuaded Norilsks management to vote Interros an extra seat on the board, ending the parity between the two oligarchs.
The ensuing conflict has been acrimonious. Rusal launched a PR campaign against Interros and Norilsks management in an attempt to sway the remaining minority shareholders. Its opponents responded by engineering the sale of an 8% stake in Norilsk to Trafigura in December and a $3.47 billion share buyback the following month, while Potanin increased his own holding in Norilsk from 25% to 30%.
Norilsk also made a series of increasingly generous offers to buy out Rusals stake, all of which Deripaska rejected. In an attempt to regain the upper hand, Rusal called an extraordinary general meeting for March 11 and obtained an injunction in a Caribbean court to prevent voting of the Trafigura and treasury shares. This, however, was overturned before the EGM.
Alliance with Rusal
Following that meeting, Usmanov revealed that Rusal had backed his nominee for the Norilsk board, Metalloinvest chairman Farhad Moshiri, and that the two companies had signed a memorandum of cooperation for further action on Norilsk. He also announced plans to buy Norilsk shares on the open market to increase his 4% stake, and commented that a merger between Norilsk, Rusal and Metalloinvest was "inevitable".
Both the timing and content of the announcement puzzled analysts. Usmanov had not played an active part in the Norilsk saga since 2008, when he signed a similar cooperation agreement with Interros and floated proposals for a two-way merger. Between them Usmanov and Deripaska control just 29% of Norilsk, against the 45.7% now held by Interros and its allies, and whereas Norilsk has a cash pot of $1.1 billion that could be used to fund further share buybacks, Metalloinvest is in debt to the tune of more than $4 billion.
Talk of a merger also seems premature. Combining privately held Metalloinvest with either Norilsk or Rusal would be problematic, and the long-awaited listing of the iron-ore producer, promised for this spring, has once again been postponed because of market conditions. In addition, a more obvious focus for Usmanov is finding a suitable buyer for the 20% stake in Metalloinvest put up for sale by Vasily Anismov.
In the circumstances, many observers dismissed Usmanovs alliance with Rusal as an opportunistic attempt to increase the value of his own Norilsk holding an understandable response, adds Dmitry Smolin, metals and mining analyst at UralSib in Moscow, given that despite the companys large cash pool Norilsk shares have paid no dividends in two years. On this theory, Usmanov believes Norilsk will ultimately have to buy out Rusals stake at a hefty premium and his own with it.
For many, indeed, this seems the only logical solution to the stalemate at Norilsk, given Potanins tightening grip on the company. Nevertheless, Deripaskas rejection of the most recent offer from Norilsk in February of $12.8 billion for a 20% stake a premium of more than 30% to market prices suggests that he endorses Usmanovs view that consolidation is "inevitable" and is manoeuvring for control of a combined metals and mining champion.
If that were not the case, says Smolin, it is hard to see why Deripaska turned down an offer that would have enabled Rusal to clear its $11 billion debt load, much of which comes with covenants designed to restrict expansion, and that had the public backing of at least two of Rusals key minority shareholders, Viktor Vekselberg and Mikhail Prokhorov. He identifies several potential post-sale targets for Rusal, including Kazakh metal producer ENRC.
"Part of the reason this conflict has gone on so long is that they are more or less equally favoured politically"
He agrees, however, that the standoff between Deripaska and Potanin is about who will take charge of a merged entity, adding that the tension has been exacerbated by the fact that both oligarchs have strong political backing. "Part of the reason this conflict has gone on so long is that they are more or less equally favoured politically," he says. "If there wasnt that balance then the conflict would have already ended, with the less politically connected person losing."
Few expect a speedy resolution to the dispute. "The problem is negotiation," says Smolin. "Deripaska and Potanin are not negotiating directly together at the moment; they are just issuing press releases and talking to each other through the media." He is doubtful that an accommodation can be reached before the end of the year and expects another battle over the election of a new board of directors at the AGM in June.
Vladimir Zhukov, senior metals and mining analyst at Nomura in Moscow, is also sceptical that a coordinated tripartite merger can be reached given the current layout of shareholders and management at Norilsk. He suggests that the impetus for change could come from within Rusal itself, if Vekselberg goes through with plans to sell his 15.8% stake in the company.
"If Norilsk ends up buying shares from Vekselberg they could imitate Rusals strategy at Norilsk by running the same kind of negative campaign against Rusal and then forcing Rusal to swap the stakes," he says.
Mantse dismisses this as unlikely but agrees that it is hard to see how the battle will end, if Deripaska and Potanin both continue to fight. "Youve got two very strong shareholders, both with deep pockets, both politically connected, neither one is desperate and they have very different agendas," he says.