Norilsk Owners Finally Bury Hatchet

MTPotanin and Deripaska arriving Tuesday at a news conference at Norilsk headquarters to announce their compromise over management and strategy.
The country's ugliest ongoing boardroom battle came to an end Tuesday as metals tycoons Oleg Deripaska and Vladimir Potanin agreed to cooperate in choosing a new board of directors for Norilsk Nickel.

"The conflict between shareholders has been settled," Potanin said at a joint news conference with Deripaska at Norilsk headquarters. "Both sides are withdrawing their grievances, as we have found a common approach to solving all of our problems."

He did not elaborate on specific problems.

The two have agreed to coordinate decisions on major deals, dividend policy, financing, mergers and sales or purchases of the company shares, according to a joint statement released Tuesday by Potanin's Interros and Deripaska's RusAl.

The agreement calls for a new board with neither Potanin nor Deripaska as members. The membership of the next board is to jump to 13, from the current nine.

The two have been feuding for seven months over Norilsk ever since RusAl bought a 25 percent share from Mikhail Prokhorov in an equity-and-cash deal in April. Interros already held about a 30 percent stake.

The two sides have been divided over development plans for the company and have accused each other of trying to devalue Norilsk's stock. Interros and Potanin have favored a strategy of a broad consolidation in the sector, a strategy Deripaska and RusAl have opposed.

RusAl also opposed a decision by the board to spend $2 billion on a 4 percent buyback to bolster its share price.

The conflict came to a head earlier this month when RusAl called for an extraordinary shareholders meeting to oust the current board, which is headed by Potanin.

The agreement announced on Tuesday precludes RusAl from pursuing merger plans with Norilsk for three years. It also leaves open the option for Norilsk to link up with Alisher Usmanov's Metalloinvest, Potanin and Deripaska said.

"We both had to overcome uneasy contradictions, are beginning our relations with a clean slate, a clean page and will be coordinating all deals and actions on a consensus basis," Potanin said, adding that the financial crisis and the 72 percent drop in the company's shares from their high in May were the key factors that pushed the two sides to "overcome their ambition and pride" to help the company.

The new board will be nominated Monday, and voting will be held Dec. 26.

The lineup will include four directors each from Interros and RusAl, current Norilsk CEO Vladimir Strzhalkovsky representing company management, one representing the government and three independent directors.

The two sides agreed that an independent director should head the board.

The government representative will most likely be put forward by Vneshekonombank, which has provided Deripaska with a $4.5 billion loan to help him refinance a loan backed by his blocking stake in Norilsk.

The head of the board should be independent, but could also be a government representative, Potanin said.

To ensure professionalism, Potanin said "reputation and experience in the industry" would be the chief requirements for potential board members.

RusAl chief executive Alexander Bulygin, Norilsk vice president and Interros chairman Andrei Klishas and Norilsk managing director Andrei Bugrov would meet those requirements, added Potanin, who did most of the speaking at the news conference, with Deripaska nodding regularly in agreement.

Potanin said Strzhalkovsky, a former KGB officer and longtime friend of Prime Minister Vladimir Putin's, had been a "positive and stimulating" force in reaching the agreement. Strzhalkovsky was appointed Norilsk CEO in August.

Deripaska made it clear that there was no question of the government trying to take control of the miner.

"The government has not tried to, and will not deprivatize the company," he said.

Potanin said that Norilsk was merely "counting on government support" during the crisis, which he called positive.

"I think the government will be happy with this outcome," said Robert Edwards, a metals analyst with Renaissance Capital. "I don't think the government actually wanted to be involved in the management, although this asset is clearly close to their hearts."

The announcement was greeted positively on the Russian market as the company's shares finished up 3.5 percent on the MICEX after rising by as much as 13 percent on the news.

Norilsk depositary receipts closed down 3.5 percent in London, however.

Edwards said the bump on the Russian exchange would likely be temporary.

"The fundamentals of the stainless steel market, in particular, are still weak and likely to remain so," Edwards said. "There's no doubt the company faces a very tough 2009."

Neither Potanin nor Deripaska offered any specifics on their plans to weather the crisis aside from saying government support was welcome.

"Any commodities company has to have a clear understanding of the supply and demand balance and to cut costs," Deripaska said, adding that some products are already being sold for less than the cost of production.

He also said it would be "profitable" for the government to buy surplus metals, comparing it to the existing practice of grain producers selling to the government to stabilize prices. "It would be the government's decision," Deripaska said.

As for a merger with Usmanov's Metalloinvest, Deripaska said this was now a possibility, saying he had changed his previous position on the subject.

Potanin said that Norilsk has an "open door policy" with Metalloinvest and would consult on possible candidates for the three independent director spots with Metalloinvest, which holds a stake of about 5 percent in Norilsk.

Metalloinvest representatives declined to comment Tuesday on the agreement between Interros and RusAl.

While Tuesday's announcement promised a more peaceful immediate future at Norilsk, skepticism remained as to whether the company would be able to remove lingering shareholder uncertainty.

"It's obviously good that these guys are calling a truce for now, but in terms of moving forward, a lot of questions remain," said Michael Kavanagh, senior metals analyst at UralSib. "We still don't know whether either of them has minority interests at heart."

The agreement creates a mechanism for working out any future clashes between major shareholders, Potanin said, without elaborating.

Deripaska said he was hopeful that the new board and a clean slate would be enough to avoid further problems.

"With us gone, the problems will be gone too," Deripaska said.