It's a complicated tale. On Nov. 28, Abramovich shocked investors -- and Yukos -- by suspending the planned $35 billion merger with his oil company Sibneft. Many interpreted the move as an attempt by Abramovich to separate his company from the fate of Yukos, whose Chairman Mikhail Khodorkovsky sits in jail on charges of tax evasion and fraud.
But the suspension is now looking more like a head feint by Abramovich. Instead of nixing the deal, he seems intent on exploiting Khodorkovsky's weakness to seize management control of the merged company for himself and his partners. Under the terms of the original deal, announced in April, Abramovich was to fold his Sibneft stake into a company owned and managed largely by Khodorkovsky and his associates.
Known as the "quiet oligarch" because he avoids the limelight, Abramovich has made it something of a habit to profit from the troubles of other tycoons. After his former partner Boris A. Berezovsky -- Russia's most outspoken oligarch -- fell out with Putin in 2000, Abramovich bought Berezovsky's stakes in Sibneft and Aeroflot. "The Sibneft guys are some of the smartest businesspeople [in Russia]," says Erik Wigertz, co-head of research at United Financial Group investment bank in Moscow. "When they smell weakness, they'll go for it."
The Putin government certainly seems intent on weakening Khodorkovsky. It not only threw him in jail but also froze his 42% stake in Yukos. And on Dec. 2, it hinted that Yukos will be forced to pay $5 billion in "outstanding taxes and penalties." Abramovich may be simply doing the Kremlin's bidding. "This is a logical move by the President for forcing out the shareholders of Yukos," says Alexei Mukhin, a political analyst at the Center for Political Information in Moscow, referring to Khodorkovsky and his partners. Most observers assume Khodorkovsky was arrested because his political activities annoyed President Vladimir V. Putin.
But Abramovich has plenty of his own reasons to fiddle with the deal. When he agreed to the merger, international oil majors were lining up to pay megabucks for participation. Following Khodorkovsky's arrest, Yukos has become a pariah, and its market value has declined 28%, while Sibneft shares are down 11%. Abramovich may want more equity as well as more control to compensate for the heightened risk of dealing with Yukos. "If you look at Abramovich's situation, there is a clear economic logic to what he's doing," says William F. Browder, CEO of Hermitage Capital Management Ltd. Sibneft shares are up 9% since its surprise announcement on Nov. 28.BEST-RUN COMPANY
With his group's $7 billion cash hoard, Abramovich has the financial might to purchase control of Yukos-Sibneft. If Khodorkovsky's shares are freed up, Abramovich could buy them directly from the Yukos boss -- who may be in the mood to sell after a few more months in jail. Or Abramovich might be able to buy the shares from the government if it decides to confiscate them to make up for back taxes. Investors are not likely to complain if Sibneft has a bigger role in the new outfit: Sibneft is seen as the best-run oil company in Russia. If Abramovich gets his way, the top slot would go to Eugene Shvidler, Sibneft's president.
Even if this buyout plan doesn't work, acquiring management control may be enough to satisfy Abramovich. He could still profit by selling a large minority stake in Yukos-Sibneft to a foreign investor. Selling off would be in line with Abramovich's recent moves to get out of Russian business: He has already sold his stakes in Aeroflot and Russian Aluminum and acquired the English football club Chelsea. Paradoxically, upping his influence in Yukos-Sibneft may actually be the best way to do that. With Khodorkovsky's role reduced and the Kremlin giving its blessing, Yukos-Sibneft could once again be in a position to attract an international suitor. Whatever happens, the sly Abramovich is likely to emerge richer than before. By Jason Bush in Moscow