Rusal Buys 25% Of Norilsk; Could Lead To Takeover

LONDON (Dow Jones)-United Co. Rusal, Russia’s largest aluminum and alumina producer, said late Friday that it had reached agreement to acquire a 25%-plus-one-share stake in OAO Norilsk Nickel (GMKN.RS) from Russia’s Onexim Group, in what could be the first step toward a total takeover of the nickel giant.

A person close to Rusal said that the deal is "paves the way to a combination of the two business to be run as one entity." The "ideal" outcome for Rusal, the person said, would be for Rusal to acquire 100% of Norilsk.

The transaction is conditional upon non-acceptance of an offer to buy the 25% of Norilsk Nickel made by Onexim to Vladimir Potanin, Norilsk Nickel’s second-largest shareholder. Onexim owner Mikhail Prokhorov approached Potanin this week offering to sell him the stake.

Under the deal announced Friday, Onexim will become an 11% shareholder of the enlarged Rusal, with the balance of the consideration to be paid in cash. Rusal refused to disclose the amount to be paid.

If the deal between Onexim and Rusal goes ahead, Onexim will also gain a representation on the Rusal board of directors.

"We regard joining forces with Onexim as a first step in transforming Rusal into a diversified energy and metal company," a Rusal spokeswoman said.

"The potential combination of UC Rusal and MMC Norilsk Nickel into a Russian metals and mining giant, with leading positions in global aluminium, nickel and platinum group metals markets, with significant long-term growth perspective, will provide superior value to both companies' shareholders," Dmitry Razumov, chief executive of Onexim Group, said in a statement.

Rusal has received a commitment letter from ABN Amro, BNP Paribas, Credit Suisse, and Merrill Lynch to provide a credit facility to finance the cash component of the consideration, it said.

Norilsk Nickel, which mines about 20% of the world’s nickel and more than half of its palladium, has a market capitalization of $53.4 billion. The major shareholders in the company are Potanin, who owns 22.3%, and Prokhorov, who owns the 25% plus one share indicated in Friday’s deal. Another 8% is owned jointly by the two, half of which Prokhorov promised to also sell to Rusal, according to a person familiar with the matter.

The two owners are in a process of separating their jointly owned assets in mining, banking, media and property.

Prokhorov had offered to sell his share holding to Potanin for $15.7 billion, which includes a 12.5% market premium, on condition that Potanin paid within 45 days.

Potanin "always had the right of first refusal to buy these shares and as a gesture of goodwill, we made this offer," Prok­horov told the Financial Times on Wednesday. "This is a very small premium for control."

Potanin’s Interros Group questioned the possibility of closing the deal in such a short time, and said that it wanted to hire international banks and consultants to value the stake and get regulatory approval first, according to the FT report.

Rusal has committed itself to going public before 2010. The company canceled its planned IPO in September, citing unfavorable market conditions. A person close to the company said that this deal doesn’t change the listing plans but wasn’t able to give any timeframe.

"Potanin’s control (of Norilsk) is preferable to Rusal buying in," said James Beadle, portfolio manager at Pilgrim Asset Management. "Rusal is far from the most transparent company on the market, and minority shareholders will not likely benefit so much from its participation."

Beadle said he feels there is a chance that Potanin will still take Prokhorov up on his offer and purchase the stake for $15.7 billion. Pilgrim Asset Management is a shareholder of Norilsk.

Norilsk shares closed Friday up $11.50, or 4.1%, to $290 as takeover speculation continued in the market. Rusal is privately owned by Oleg Deripaska Viktor Vekselberg and Swiss trader Glencore International.