Prokhorov Sells 25% in Norilsk to RusAl

Months of negotiations and rumors came to an end Thursday as Oleg Deripaska's United Company RusAl closed a deal to buy a stake of 25 percent plus one share in Norilsk Nickel, the world's biggest producer of the metal.

But the deal only raised new questions about future relations between Mikhail Prokhorov and his former business partner, Vladimir Potanin, both major shareholders in Norilsk, who have been carrying out the complicated process of untangling and dividing their assets since last year.

"The deal is finalized, and we are happy," said Igor Petrov, spokesman for Prokhorov's Onexim, minutes after the deal was officially announced Thursday afternoon.

Representatives from Potanin's investment vehicle, Interros Holding, declined comment on the deal Thursday. Potanin was said to be considering a separate proposal to merge with Alisher Usmanov's Metalloinvest, the country's largest iron ore producer.

On Thursday, Metalloinvest confirmed that it was still interested in a merger with Norilsk, Bloomberg reported.

Onexim, which had owned the stake sold Thursday, will now receive a 14 percent stake in RusAl, the world's largest aluminum and alumina producer, plus cash. Neither side would name the sum of money changing hands.

Bank of Moscow analyst Dmitry Skvortsov said $8.7 billion would be in line with the current values of the companies involved. He put the value of RusAl, which is not traded publicly, at $45 billion with the acquisition of the Norilsk stake, while Norilsk's current market capitalization is $60 billion.

Initial discussion when negotiations began last November was that Prokhorov would get an 11 percent stake in Norilsk, but changing international economic conditions altered the numbers.

"The world financial crisis has made its corrections," Onexim's Petrov said.

RusAl had reportedly agreed on a $4.5 billion, two-year syndicated loan with a group of international banks to underpin the acquisition last month, when information that Prokhorov was unhappy with the conditions of the loan was leaked to the press.

Sources inside RusAl said Prokhorov was unhappy with a provision in the agreement allowing for the loan to be called in if RusAl did not hold an IPO by November 2009.

A number of sources close to the deal said the problems with the loan agreement put the whole deal in danger just as information that Usmanov was also interested surfaced.

Company representatives denied the allegations Thursday.

"There were no problems. Everything has gone according to schedule in the first quarter of the year, as we promised," said a RusAl spokeswoman, who asked that her name be withheld in line with company policy.

As a result of the deal, RusAl will now have the right to nominate four candidates to the Norilsk Nickel board, with Victor Vekselberg and Oleg Deripaska among them. Their candidacies will be voted on at Norilsk's annual shareholders' meeting in June.

"We will establish our relationship with the company's management and … intend to play an active role in implementing Norilsk Nickel's development strategy," RusAl CEO Alexander Bulygin said in an e-mailed statement Thursday.

Analysts said RusAl's move was part of a strategy to create a metals giant.

"One of the most likely options is the creation of a giant corporation with the participation of RusAl, Norilsk Nickel and Metalloinvest," said Oleg Petropavlovsky, a metals analyst at Brokercreditservis.

If it came into being today, such a company would have a total worth of more than $150 billion.

Sources inside Onexim Group were not ruling out such a tie-up. RusAl began openly discussing such an option as early as last December, when Deripaska agreed to acquire Prokhorov's stake after Potanin had refused to buy the shares for $15.7 billion, calling the price excessive.

"We want to create Russia's first diversified metals company on a global scale," the company said in an official statement in December. At the time, it also said it was planning a full takeover of Norilsk.

The problem with realizing such a plan now becomes Potanin's 33 percent stake in Norilsk, with an estimated value of $20 billion, said Petropavlovsky of Brokercreditservis.

Norilsk Nickel's shares dropped 5.11 percent on RTS, to $275 at Thursday close, a fall Petropavlovsky attributed to market jitters over the plan to create a giant around RusAl.

Another problem is uncertainty about what RusAl will actually do when it gains a voice in Norilsk management.

"The worst-case scenario would be no change in the situation, with key decisions being blocked by the rivalry between Deripaska and Potanin, both of whom will now have sufficient shares to do this," Petropavlovsky said.