14 Jan 2011 19:14

Rusal takes Norilsk Nickel to court over buyback, shares and genco sales

MOSCOW. Jan 14 (Interfax) - Aluminum giant UC Rusal has filed lawsuits with the Krasnoyarsk Territorial Arbitration Court against MMC Norilsk Nickel , in which it owns a blocking stake, over a share buyback, the sale of quasi-treasury shares to Dutch commodities trader Trafigura and a decision to sell the OGK-3 generating company to Inter RAO .

Buyback, shares

The court says on its website that the lawsuits had been filed. Rusal confirmed the suits had been filed, but said it would not comment on them until they had been heard. Norilsk Nickel said the court had not yet decided whether to hear the suits but that in any case it does not believe there is a basis for any such claims and would "contest them vigorously."

Rusal says in the text of the buyback suit, seen by Interfax, that it is challenging a public offer by Norilsk Nickel subsidiary Corbiere Holdings Ltd to buy up to 6.2% of the company for $252 a share or $25.2 per ADR.

Norilsk Nickel plans to sell 8% quasi-treasury shares to Trafigura. Rusal is asking the court to invalidate the conversion of these shares into American Depositary Receipts (ADR) and the sale of the receipts to Trafigura.

Norilsk Nickel failed to reach agreement with UC Rusal to buy its 25% stake in the company towards the end of last year. Norilsk said it would now commence a $4.5-billion share buyback, which Rusal opposes as it believes it is being done in retaliation for not selling out.

Norilsk had given Rusal until December 28 to respond to an offer to buy it out for $12 billion. It said before a board meeting that day that if Rusal did not accept, it would have to "implement other means to neutralize negative effects of the shareholders' conflict on current operation of the company and its strategic development." "Striving to increase the shareholder value of the Company, MMC Norilsk Nickel will be intending to present a general buy-back proposal for approval by the Board of Directors. The Company has accumulated enough cash in hand to conduct it without additional external financing," Norilsk Nickel said at the time.

Norilsk Nickel may buy back company shares worth up to $4.5 billion over the next 12 months, the company said in a statement on December 29. The buyback is the first stage of the Shareholder Value Enhancement Program approved by the board of directors.

Norilsk Nickel has conducted a buyback before, in late 2008-early 2009. It bought back about 4% of shares for a total of 48.4 billion rubles. The purchases resulted in formation of the quasi-treasury stock amounting to 8.45% of equity, which the company plans to sell to Trafigura.

Norilsk Nickel's shareholders hold an EGM on March 11 to elect a new board of directors. Rusal wants the EGM due to concerns about the proposed deal to sell the 8% quasi-treasury shares in Norilsk Nickel to Dutch commodities trader Trafigura. It has said the sale of the stake, worth $3.5 billion, ought to be cleared by the board of directors, and is worried that the ultimate purpose of the deal is to give Vladimir Potanin's Interros more influence at Norilsk Nickel.

Norilsk has countered that the deal would be done for cash and on market terms, and that the company expects to make a profit from it.

UC Rusal's chief executive, Oleg Deripaska, said on December 29 that the company would challenge the sale of quasi-treasury shares to Trafigura and the $4.5-billion share buyback in court.

Rusal said in a statement on December 29 that such "active pressure on Rusal to force the company sell its stake began after the extraordinary general shareholders' meeting held in October 2010 at which the vast majority of minority shareholders supported Rusal and voted for the reelection of the current Board of Directors. It is only the quasi-treasury shares owned by MMC [Norilsk Nickel] that decided the outcome of the vote. This means that both the management of MMC and Interros understand that recent events and actions they have announced, in particular the sale of the treasury shares to Trafigura, most likely at a discount to the market price and with the management preserving the control over these votes, and the planned buyback of the shares at a premium to the market, are aimed exclusively at enrichment of one particular shareholder at the expense of all others, as well as Rusal's efforts to consolidate the position of minority shareholders, can make a difference and lead to the re-election of the current Board of Directors in March 2011."

Grounds for action

Rusal's grounds for the suit regarding the quasi-treasury share sale are that converting the quasi-treasury shares into ADRs and selling them to Trafigura would violate the rights of Norilsk shareholders. Rusal believes a group of entities consisting of Vladimir Potanin's Interros, Norilsk Nickel and its shareholders Interros International Investments Limited, IFCI (Cyprus) Limited, Bonico Holdings Co. Limited, Montebella Holdings Limited, Corbiere and Raleigh, holds more than 30% of the shares in Norilsk Nickel and should therefore be obliged to make an offer to all shareholders to buy them out.

Rusal says in the lawsuit that it believes this group owns 32.23406% plus one share in Norilsk Nickel and that the group could only have voted with 30% of the shares at the annual general meeting in June, and that the shares were converted into ADRs to "conceal the fact that more than 30% of voting shares were acquired so as to avoid having to make a mandatory offer and to restrict voting rights at the extraordinary shareholders' meeting on October 21."

Rusal did not gain as much representation on the board of directors as Interros at the AGM and claimed vote-rigging may have taken place. It convoked the EGM on October 21 to try and elect a new board but this fell through.

Rusal claims in the buyback suit that if Corbiere is able to exercise voting rights on management's behalf, this would distort the will of the shareholders and alter the alignment of forces among the shareholders. All this, Rusal says, would exacerbate the corporate conflict at Norilsk Nickel.

OGK-3 sale

Rusal has also filed suit with the Krasnoyarsk court over a decision by Norilsk Nickel's board on December 28 to divest the OGK-3 generating company.

A source close to the board told Interfax on December 28 that the board approved the sale of Norilsk Nickel's stake in OGK-3 to Inter RAO UES.

Inter RAO is poised to acquire about 85% of OGK-3 shares, including 79.24% from Norilsk Nickel direct and roughly 6% currently held on OGK-3's balance sheet. The shares in OGK-3 would be exchanged for new shares in Inter RAO. Norilsk would receive 13%-15% of Inter RAO stock in a deal that Norilsk Nickel has estimated to be worth just over $2.27 billion.

Oleg Deripaska's EuroSibEnergo made a $2.1-billion cash offer for the OGK-3 stake.

Rusal says its grounds for this suit are that the Norilsk board decisions are detrimental to the interests of the company and its shareholders. "The combined stake in OGK-3, worth 62.8 billion rubles, is being exchanged for a block of shares in Inter RAO that is worth just 60.5 billion rubles at average market prices. Also, and against the interests of Norilsk Nickel shareholders, the board ignored a rival bid for the OGK-3 shares from EuroSibEnergo, which would have been more advantageous. The difference between the price offered by EuroSibEnergo and the price at which the shares will be divested represents the losses that Norilsk Nickel will incur in the form of missed profit emanating solely from the decision by the majority of board members."

Rusal believes the shares in OGK-3 are being divested at a discount. The rival offer would have given Norilsk cash, not a minority stake in a non-core enterprise, so the board's decision runs against the interests of Norilsk Nickel as a commercial entity, Rusal says.

Also, in keeping with generally accepted corporate practice, controlling stakes are always sold at a premium over the market, not at a discount as in the case with OGK-3, Rusal says. The aluminum company estimates the lost profit at 3.96 billion rubles, which is "not consistent with Norilsk Nickel's strategic development goals."

No basis

Norilsk Nickel said in a statement late Friday that it "notes the information published on the web-sites of the relevant Russian courts that LLC UC Rusal Investment Management has filed three claims with the Commercial Court of the Krasnoyarsk Territory to the Company, its indirect wholly-owned subsidiary, Corbiere Holdings Limited, and other parties, apparently seeking to invalidate the offer to purchase commenced by Corbiere on December 29, 2010 and the sale of the Company's ADRs to Trafigura Beheer BV."

"The Company notes that according to the information appearing on the referenced web-sites, UC Rusal LLC has also requested injunctions in respect of the claims filed."

"The Company has not received copies of either the statements of claims or the injunctions requested. However, it does not believe there is a basis for any such claims seeking to invalidate or enjoin the offer to purchase or the sale of ADRs and intends to contest any such claims vigorously," Norilsk Nickel said.