Bloomberg News

Billionaire Potanin May Seek Norilsk Control After Buyback

September 29, 2011

(Updates with Rusal comments from 13th paragraph.)

Sept. 29 (Bloomberg) -- Billionaire Vladimir Potanin’s Interros Holding Co. may seek control of OAO GMK Norilsk Nickel after a $4.5 billion buyback and stock cancellation, gaining the upper hand in a shareholder dispute with United Co. Rusal.

Interros will tender a stake “proportionate” to its holding in Norilsk, which is about 30 percent now, in the buyback, Potanin said yesterday in an interview in Moscow. The company will offer only those shares that aren’t needed as collateral or in other stock transactions, Interros said today by e-mail. It will then ask Norilsk to cancel repurchased stock, Potanin said.

Interros and Oleg Deripaska’s Rusal, which holds 25 percent of Norilsk, have been locked in a dispute over influence on the board and use of the company’s cash since 2008. Rusal said Sept. 13 the buyback is solely in the interest of Interros, which aims to take full control of Norilsk using the company’s own balance sheet. Potanin said the principal reason for the buyback is to bolster Norilsk’s shares in an “unstable” market.

Norilsk Nickel Investments Ltd. began a monthlong program yesterday to repurchase 7.71 percent of the mining company’s stock for as much as $306 a share, or $30.60 a depositary receipt. Norilsk will buy stock on a pro-rata basis.

Raise Stake

Norilsk shares rose 7.35 percent yesterday to 6,998 rubles ($219.80), the biggest gain since January, as the company’s buyback program started. That is 10 percent lower than this year’s high in April. Norilsk is accepting bids until Oct. 28.

Norilsk plans to finance the buyback offer using its own funds and current credit lines from banks, Potanin said.

Given that Rusal and some minority investors won’t participate in the program, the shares sold by Interros may amount to about $3 billion, with the balance bought back in the market, Alexander Pukhaev, co-head of research at VTB Capital, said by phone.

After a share cancellation, Interros’s stake would exceed 30 percent, Potanin said. Interros would then ask the Russian government for permission to raise this to a controlling interest, he said, adding that “we haven’t decided yet whether we will increase it or not.”

Share Cancellation

Crossing the 30 percent threshold as a result of a share cancellation doesn’t trigger the mandatory general offer usually required under Russian rules.

To proceed with a cancellation, Norilsk Nickel Investments will need to transfer shares to the parent company, and the cancellation itself will need to be approved by Rusal.

If Rusal blocks the share cancellation, Norilsk may sell the repurchased shares to the market, Potanin said.

“I hope Rusal won’t block the share cancellation as this is a logical deal and it is in the interests of all shareholders,” Potanin said.

Rusal says it has sought to annul Norilsk treasury stock.

“We consistently supported the idea of cancellation of treasuries,” Deputy Chief Executive Officer Maxim Sokov told reporters by phone today. “This time is no exception, though we understand that Interros will benefit from it.”

State Approval

The buyback is structured to allow Interros to sell as many shares as possible, Sokov said. Norilsk should get approval from the Russian government to carry out the buyback under the strategic companies law, Sokov said. Norilsk and Potanin together form a group and any increase in their interest in the company is subject to state approval, he said.

Erzhena Ishenko, Norilsk’s spokeswoman, declined to comment.

Rusal has snubbed several buyout offers from Norilsk. The latest buyback program was announced after the aluminum producer rejected a proposal to sell a 15 percent stake back to Norilsk for $8.75 billion.

Rusal Chairman Viktor Vekselberg aims to broker a deal with fellow Rusal shareholders that if Norilsk offers about $18 billion they will agree to sell their stock, people with knowledge of the matter said Sept. 20, declining to be identified because the talks are confidential.

“Norilsk shouldn’t make a new buyout offer to Rusal in the current unstable market situation, as it will cause an increase in the company’s debt,” Potanin said yesterday. A possible deal with Rusal may be discussed only if the price is appropriate.

--Editors: Torrey Clark, Tony Barrett

To contact the reporter on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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