Abramovich to play peacemaker at Norilsk Nickel

By bne IntelliNews December 4, 2012

bne -

Kremlin insider Roman Abramovich is to resurrect his role as peacemaker in the long running dispute between oligarchs Vladimir Potanin and Oleg Deripaska over control of metal giant Norilsk Nickel.

Reports on December 4 confirmed earlier stories doing the rounds that the controlling shareholders in Norilsk are close to reaching a resolution to their conflict that will see Abramovich buy 7.3% of the company via his holding Millhouse that is currently in the form of treasury stock, with the remaining treasury stock to be cancelled.

As part of the deal Potanin will become the new CEO, while the two warring oligarchs will halt all pending legal action and restart dividend payments. There will be four board members each for Potanin's Interros and Deripaska's RusAl. Millhouse will take another three seats, and be joined by another two independent directors.

The only peculiar point in the reported deal is that the other shareholders will have the option to buy Millhouse's 7.3% stake at a 25% discount "in the event of a default" - a clause which Alfa Bank says it is unclear about.

Norilsk has been Potanin's cash cow since he won control of the company during the notorious loans-for-shares privatisation in the mid-1990s. However, when his long time partner oligarch Mikhail Prokhorov sold out just ahead of the 2008 crisis Deripaska took the opportunity to buy into the company and the two strong men of Russian business have been at logger heads ever since.

Meanwhile, Abramovich plays a unique roll amongst the Russian corporate firmament.

He was seen as bringing the "aluminium wars" to an end, after he emerged from the bloody fight as 50% shareholder in Siberian Aluminium (commonly known as SibAl). The company was run by his then-protégé Deripaska, and then transformed into Russian Aluminium (RusAl) when junior partner bought Abramovich out.

Meanwhile, he more-or-less ran the country together with Yeltsin's daughter Tatiana Dyachenko during the last years of the presidency, and is credited with hand picking Vladimir Putin to take over when Yeltsin resigned in 2000.

If Abramovich intended Putin to be a puppet then his plans rapidly went awry. Seeing the change in the wind as the new president consolidated control, Abramovich cashed out and retired, breaking a deal to tie up with oil major Yukos at the very last moment in the process, to sell his oil company Sibneft to Gazprom instead.

However, his relationship with the erstwhile president remains close and the Kremlin has used him on several occasions over the last decade or so. Abramovich has served time as governor of the far north-eastern wasteland of Chukotka, and also took a stake in steel maker Evraz when it was toying with the idea of selling to an international player.

Now it looks like he is being wheeled out again - more than likely on Putin's orders. He seems to have a special talent for such missions. The bloodshed surrounding the aluminium segment stopped immediately he became involved. Likewise at Evraz, even thought it seems he was forced upon the company, according to bne sources the partnership has grown close and effective.

The move to finally resolve the mess at Norilsk Nickel looks like part of the wider early spring clean going on in government. The Kremlin has significantly stepped up its anti-corruption campaign, pointing the finger at several senor figures in an apparent bid to improve Russia's investment image. The lingering and cancerous row at the world's largest nickel producer has been denting that picture for some time now, so it seems Putin has ordered it ended.

Looking short term, analysts were buoyed by the news, expressing hope that the depressed share price should benefit once peace breaks out. However, in the long term, the company still faces many serious problems.

Aton's Dinnur Galikhanov writes in a note: "Longer term, we expect the company to focus on refining its growth strategy and improving the efficiency of capital allocation to ensure stable free cash flows. Norilsk may increase its dividends once the conflict ends (we estimate the dividend yield could rise to 5-6% if the payout ratio is hiked to 50%), which should make the shares even more attractive. However, we do not believe these corporate factors will provide long-term support. Norilsk is facing weak fundamentals on numerous fronts. Once the dust settles, we think that investor attention will return to these factors, possibly leading to a downward correction in the share price."

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