SUMMARY: Norilsk fails to reach agreement with Rusal to buy 25% stake
MOSCOW. Dec 29 (Interfax) - MMC Norilsk Nickel has failed to reached agreement with aluminum giant UC Rusal to buy its 25% stake in the company, a source close to Norilsk's shareholders told Interfax. Norilsk said it would not commence a $4.5-billion share buyback, which Rusal opposes as it believes it is being done in retaliation for not selling out; and that its shareholders would hold an EGM, convoked by Rusal, to elect a new board of directors on March 11.
Offer falls through
"There was some bargaining. Norilsk was prepared to offer Rusal $14 billion, but Rusal wanted $16 billion" for its stake, the source told Interfax. "That would have undermined Norilsk's financial and economic state, so the sides did not reach an agreement," he said.
The source said there had been an agreement with Viktor Vekselberg, the chairman of the board and a shareholder in Rusal, that Rusal would meet Norilsk's asking price, but Oleg Deripaska, Rusal's CEO and main beneficiary, refused to go lower than $16 billion.
Deripaska himself told reporters on December 29 that he would not back down.
"There can be no question of any haggling. We don't intend to sell our shares in Norilsk Nickel because this is a strategic investment for us," a Rusal representative told Interfax on December 29.
Norilsk had given Rusal until December 28 to respond to an offer to buy it out for $12 billion. It said before yesterday's board meeting 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."
Shares in Norilsk Nickel led the Russian stock market on Wednesday, after UC Rusal rejected the offer to sell back its blocking stake. Norilsk shares were up 3.15% to almost 7,100 rubles per share on MICEX as of 11:31 a.m. Moscow time on December 29, their highest level since May 2008.
Rusal had considered the offer, and hired Merrill Lynch to perform a fair valuation of the stake. Mikhail Prokhorov, the previous owner of the blocking stake in Norilsk and nowadays a Rusal shareholder, said he thought the stake's fair value was $12 billion-$15 billion, and Rusal minority shareholder Nathan Rothschild said he thought $15 billion was a fair value.
Buyback
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 already reported that a subsidiary, Cobriere Holdings, plans to begin buying up company shares later today. Cobriere plans to purchase up to 11.904 million shares (6.2% of charter capital) at $252 each, or a total of up to $3 billion.
Norilsk Nickel shares were trading at just over 7,000 rubles each as of 11:52 a.m. on MICEX on Wednesday, or roughly $230 each. Thus the offer price amounts to about a 10% premium to the market.
Cobriere will begin the purchases at 5:00 p.m. Moscow time on December 29 and end them on January 21.
Citigroup Global Markets Limited is the manager for organizing and carrying out the purchases. The information agent in relation to Norilsk Nickel depositary receipts, which may also be purchases, is BNY Mellon Shareowner.
Andrei Klishas, the Norilsk Nickel president, told reporters on December 29 that Russian law used to state that Norilsk could only repurchase ordinary shares and not ADRs. "Now everybody will be able to sell," he said.
Klishas said around $3 billion would be allocated for the share purchase during the main tender, and another $1.5 billion to buy back shares on the market.
The repurchased shares will be voting shares, and management "will be able to vote with them," he said.
Rusal voted against the buyback at Norilsk's the December 28 board meeting. It views the decision as retaliation for refusing to sell its 25% stake in Norilsk.
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 quasi-treasury stock amounting to 8.45% of equity, which, as the company recently announced, it plans to sell to Trafigura.
EGM
Norilsk's Klishas said on December 29 that the EGM to elect the new board of directors would take place on March 11. He said the register would close on February 4.
Rusal wants the EGM due to concerns about a proposed deal to sell 8% quasi-treasury shares in Norilsk to Dutch commodities trader Trafigura. It says 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 will challenge the sale of quasi-treasury shares to Trafigura and the $4.5-billion share buyback in court, Oleg Deripaska said on December 29.
Deripaska also said Rusal intended to bring court action against the banks that consulted Norilsk on the buyback, namely HSBC, UBS and Citi. "This was blatant [recommendations by the banks] to us. What sort of position is this by banks which are supposed to give an adequate judgment for investors?" he said.
The actions of Norilsk's management in these deals run against corporate governance practices, Deripaska said. "If somebody wants control, they ought to make a public offer for all the shares," he said.
Trafigura is one of the world's biggest commodities traders. Its nearest rival is Switzerland's Glencore, which is a Rusal shareholder. Glencore has offered to trade metals for Norilsk, but has been turned down.
Rusal's Deripaska said Glencore had offered to buy the same packet of quasi-treasury shares the mining company is selling to Trafigura. He declined to comment on details of that offer or what was discussed.
Rusal tried but failed to get Norilsk Nickel's board re-elected in the wake of the disputed annual shareholders meeting in June at an extraordinary meeting on October 21.
Oleg Deripaska said on December 29 that he would run for election to the board at the March EGM, as would Alexander Voloshin.
The company will be insisting that Voloshin be returned as board chairman - Voloshin chaired the board until the AGM on June 28.
"It won't be interesting without me," Deripaska said, when asked if Rusal would be nominating him for the board.
He said Rusal would decide on the full list of candidates in due course.
He also said Rusal had been forced to call the latest EGM because "three or four [Norilsk] boards [have been elected] but we don't see any changes in day-to-day management.
Deripaska said the next stage after the board has been re-elected would be to change the general director and top management at Norilsk Nickel. "This will happen by itself after the board has been reelected," he said.