Russian tycoon becomes Norilsk CEO in board peace deal

MOSCOW Mon Dec 17, 2012 9:57pm IST

Vladimir Potanin attends the Reuters Russia Investment Summit in Moscow September 13, 2011. REUTERS/Denis Sinyakov

Vladimir Potanin attends the Reuters Russia Investment Summit in Moscow September 13, 2011.

Credit: Reuters/Denis Sinyakov

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MOSCOW (Reuters) - Norilsk Nickel (GMKN.MM) named longtime co-owner Vladimir Potanin as its chief executive on Monday under a Kremlin-inspired deal to end a boardroom war at the world's top nickel and palladium producer.

Oligarch Roman Abramovich will take control of a 20 percent voting stake and act as a buffer between Potanin and rival Oleg Deripaska, who owns a share in Norilsk through UC RUSAL (0486.HK), the world's largest aluminum producer.

"When the new lineup of shareholders gets used to each other, confidence will grow that we now feel is now lacking," Potanin said, paying tribute to the mediating role to be played by Abramovich, an ally of President Vladimir Putin.

Speaking after his unanimous election by the Norilsk board, Potanin said he planned to stay in the job for between 18 months and two years. The peace deal will last for 10 years, with the core shareholders agreeing to keep their stakes for five.

Abramovich, the billionaire owner of Chelsea soccer club, could act as a conduit for the Kremlin at the cash-rich company that mines the vast mineral deposits of Russia's far north.

Having brought an end to the four-year feud between Potanin and Deripaska, he could potentially end up sidelining them as Putin seeks to restore order at the $30 billion miner that was privatized in the mid-1990s.

Deripaska and Potanin now lose their blocking voting stakes and Abramovich steps in with the ability to serve the president's interests early in his new six-year term.

"Roman Abramovich is a businessman who wants to make money," a well-connected industry insider said of the deal. "Norilsk Nickel is a cash machine that doesn't need to fear a crisis."

Alexander Abramov, Abramovich's partner in Evraz (EVRE.L), Russia's largest steelmaker, is to become board chairman at Norilsk Nickel, a source said. Norilsk's shareholders will elect a new board on March 11.

Vladimir Strzhalkovsky, who like Putin served in the Soviet KGB security force, steps down as CEO - a demand by Deripaska that Potanin had resisted.

Sources close to the company's shareholders said last week that Strzhalkovsky, who sided with Potanin and launched a series of buybacks during the dispute over Norilsk Nickel's cash flows, would have a $100-million severance deal.

UNLIKELY APPOINTMENT

The appointment by the Norilsk board of Potanin, a survivor of the battles between the businessmen who struck it rich after the collapse of the Soviet Union in 1991, had appeared unlikely until the deal was reached this month.

Potanin left the Soviet trade ministry and created a banking empire in the early 1990s - securing control over Norilsk at a bargain-basement price in the loans-for-shares privatizations that he masterminded.

His stake at Norilsk Nickel was one of the biggest prizes handed to insiders in the post-Soviet carve-up of Russian industry in 1995, a process that spawned a new oligarch elite.

Putin reined in the tycoons after he rose to power in 2000, and signaled last week he was intent on tackling some of the problems that continue to blight Russia's business scene after 13 years as the country's dominant leader.

Sorting out problems at Norilsk Nickel would help enhance Russia's image among foreign investors.

Potanin, 51, is ranked the 46th-richest man in the world, with a fortune estimated at $14.5 billion by Forbes magazine.

He had long rejected a direct role in managing the company, saying he preferred to leave the day-to-day running of the company to professional managers.

Despite the deal, it is not clear whether a balance of power has been reached at the management level. Analysts expressed concerns that paying out dividends could take precedence over capital investment now running at about $2.5 billion per year.

The company will pay around half of its core earnings, expressed as earnings before interest, depreciation and amortization (EBITDA) in dividends over the next few years, said Potanin. It will start paying dividends twice-yearly in 2014.

Norilsk is likely to generate about $5 billion EBITDA per year, meaning that it could be able to spend up to $7.5 billion on 2012-2014 payments, analyst Sergey Donskoy at Societe Generale said. Sources previously said Norilsk was considering paying dividends totaling $10 billion for 2012-2014.

INVESTMENT PROGRAMME TO BE FULFILLED

Deputy Prime Minister Arkady Dvorkovich, however, said that Norilsk's investment program would be carried out in full and spending would even increase.

"Based on the materials I have seen, there is no significant cause for concern," he said.

Norilsk could eventually revisit the idea of merger and acquisition deals forced off the agenda by the shareholder dispute, said Vadim Astapovich, an analyst at VTB Capital.

Trouble broke out at the company after the global financial crisis in 2008 when Deripaska, who had bought out Potanin's partner Mikhail Prokhorov with a view to merging Norilsk with RUSAL, defied pressure to exit to cut his own debts.

Under the peace deal, Deripaska will finally prevail in his demand for hefty dividend payouts forcing the company to borrow to cover the cost. The Vedomosti daily quoted sources on Monday as saying Abramovich and Abramov, plan to buy up to 10 percent of Norilsk shares.

Abramovich will hold 5.87 percent of Norilsk Nickel, RUSAL will hold 27.8 percent and Potanin's Interros will hold 30.3 percent after Norilsk's treasury shares - amounting to almost 17 percent of its issued capital - are canceled.

To ensure Abramovich's role as enforcer of the peace, the other two billionaires will give him voting power over some of their shares. That will leave the three billionaires with nearly equal voting stakes but means Abramovich can impose a resolution in any dispute between the other two.

(Additional reporting by Andrey Kuzmin and Melissa Akin, Editing by Timothy Heritage, Megan Davies and Anna Willard)