Norilsk billionaires end feud with Abramovich as enforcer

MOSCOW Tue Dec 4, 2012 9:42pm IST

Russian billionaire and owner of Chelsea football club Roman Abramovich leaves a division of the High Court during a lunch break in central London November 8, 2011. REUTERS/Andrew Winning

Russian billionaire and owner of Chelsea football club Roman Abramovich leaves a division of the High Court during a lunch break in central London November 8, 2011.

Credit: Reuters/Andrew Winning

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MOSCOW (Reuters) - Two Russian billionaires ended a four-year battle over the world's biggest nickel and palladium miner on Tuesday by giving the largest voting stake in their $30 billion company to a third: Kremlin-favored tycoon Roman Abramovich.

Norilsk Nickel (GMKN.MM), which mines the vast mineral deposits of Russia's far north, was one of the biggest prizes handed to insiders in the post-Soviet carve-up of Russian industry that created a generation of oligarchs.

Vladimir Putin, who returned to the presidency in May, has said he wanted an end to a feud between two of Russia's richest men - Vladimir Potanin and Oleg Deripaska - over board control and payments to shareholders in the firm.

Tuesday's deal appears to bear the stamp of the Kremlin, with Abramovich, the well-connected owner of London's Chelsea football club, acting as enforcer to end the dispute.

Potanin and Deripaska agreed that Abramovich would buy a 7.3 percent stake, in the form of treasury stock, at market price. The stake is now worth around $2 billion.

The three parties will each contribute equal stakes, amounting to 22 percent of Norilsk, to an escrow account that will be voted by Abramovich's investment firm Millhouse - giving him the largest say over how the company is run.

"Millhouse will control the compliance with the partnership agreement while voting with this block of shares," Potanin and Deripaska said in a joint statement issued by their firms. Millhouse declined comment.

The arrangement reduces the voting power of Potanin's holding company, Interros, now 28 percent, and that of Deripaska's Hong Kong-listed aluminum giant RUSAL (0486.HK), currently 25 percent.

In return, Deripaska will get the higher dividends he has long sought. Potanin - who has controlled Norilsk since he won it in the "loans-for-shares" privatization scheme he ran as a top official in the 1990s - will be chief executive.

Analysts said the prospect of higher dividends would boost sentiment among portfolio investors, but new management would have to improve efficiency to trigger a sustained rally in the stock. Norilsk has a free float of 18 percent.

"It's all about whether this shareholder agreement will translate into more effective management," said Sergey Donskoy, metals and mining analyst at Societe Generale. "If it does, that could help lead to a more substantial re-rating."

Norilsk trades at around 8.5 times forecast 2012 earnings, putting it at a discount of around 20-25 percent to its Russian mining sector peers, Donskoy estimates.

Norilsk shares gained 1.35 percent in Moscow to 4,876. Shares of RUSAL, listed in Hong Kong, gained 2.4 percent to HK$4.64, outperforming a flat broader market .HSI.

PEACE BREAKS OUT

With Tuesday's deal, the sides suspended legal cases. A London arbitration court had been due to open hearings into a case dating back to 2010 in which Deripaska accused Interros, Potanin's investment company, of reneging on a deal to run Norilsk in the interests of all shareholders.

Potanin and Deripaska have been locked in a shareholder dispute since the RUSAL bought a one-quarter stake in Norilsk just before the 2008 global crash in a deal around $14 billion.

The acquisition was meant to herald a merger into an all-Russian major able to compete with global miners such as BHP (BHP.AX), but that plan was crushed by the financial crisis.

Loss-making RUSAL is now burdened by $10.7 billion in net debts, greater than its market capitalization of $8.9 billion, and is battling a fall in aluminum prices. Deripaska has resisted parting with the stake in Norilsk, now worth around $7 billion, the lion's share of RUSAL's equity value.

Talks to end the dispute have been on-and-off but sources said in October they had resumed, fuelling speculation that a peace deal was in the works.

Abramovich, the 68th-richest man in the world with a fortune estimated at $12.1 billion by Forbes magazine, is widely viewed as having among the strongest Kremlin ties of the oligarchs.

Now a co-owner of FTSE 100-listed steel firm Evraz (EVRE.L), Abramovich won control of oil firm Sibneft after its privatization in the 1990s. He sold Sibneft in 2005 to Gazprom (GAZP.MM), the state gas export monopoly, for $13 billion.

RUSAL said the deal would ensure Norilsk pays stable dividends for the years 2012-2014. The shareholders agreed that Norilsk will pay at least 50 percent of its annual net income as dividend, said a source close to one of shareholders.

Norilsk will cancel the rest of its treasury shares - amounting to about 10 percent. Interros and RUSAL are not to sell shares for five years and Millhouse is not to sell for three years under a lock-up agreement.

(Additional reporting by Douglas Busvine, Andrey Kuzmin and Anne Marie Roantree and Donny Kwok; Writing by Megan Davies; Editing by Douglas Busvine and Peter Graff)