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. Last Updated: 07/27/2016

Investors, Managers Brace for Battle in Lipetsk

A showdown may be brewing at the Novolipetsk Metallurgy Combine this weekend as a group of outside investors claiming to possess a controlling interest in the steel mill prepares to march into a shareholders meeting ready for battle.


Moreover, the investors said Thursday they have filed suit to try to delay Saturday's annual shareholders' meeting altogether, claiming the assembly is "illegal."


The group -- made up of Cambridge Capital Management, Renaissance Capital and MFK, the investment arm of Uneximbank -- has been struggling for proportional board representation for months, locked in battle with Soviet-era managers who claim the outsiders are 'speculators' with only the short-term share price on their mind.


The investor group also has pressed for a closer look at the company's metals trading agreements, which they allege were sealed at cut-rate prices with the company's other largest shareholder, Trans-World Metals.


London-based metals giant Trans-World holds 37 percent of Novolipetsk and has consistently voted its shares with management. But so far, the battles have taken place mostly in the press and the courtroom.


On Saturday, it appears to be headed for the factory itself.


Officials with Cambridge and Renaissance Capital's Sputnik Fund said Thursday they have obtained more than 50 percent of Novolipetsk and will try to vote down each item on the agenda at the annual meeting.


Cambridge and Sputnik allege that Saturday's shareholders' meeting is illegal since management flouted a recent court order stating that the investors had a right to nominate candidates for the 9-member board.


Likewise, the group is threatening to call an extraordinary meeting.


Novolipetsk management has "broken Russian corporate governance laws again," said Jim Dannis, head of investment banking for Salomon Brothers, which represents Cambridge's 17.2 percent stake in the steel factory.


Company management "called a meeting without a vote on directors, and that disregards their legal obligation to shareholders," Dannis said.


Lawyers for the group filed suit Thursday asking for the Saturday meeting to be delayed. They shrugged off the tight schedule for obtaining a court order. "Even 24 hours is enough," said Henrick Padva, a Chadbourne & Park attorney representing the outside investors.


In May, an arbitration court in Lipetsk ruled favorably on a slew of other suits filed by Cambridge, Sputnik and MFK. At that time, the group jointly held roughly 40 percent of the company. The court ruled that Novolipetsk must include Sputnik and Cambridge's four board nominees on the list of board candidates to be voted on at the annual meeting.


But the company reportedly left the vote off of the agenda in violation of Russia's joint-stock company law, which requires a vote on the board of directors every year.


Now, however, the investors say things have changed. "We hold in excess of 50 percent of Novolipetsk's share capital" after buying more shares on the open market, said Thomas Gaffney, chairman of Cambridge. That would be enough to disrupt the meeting, as well as call an extraordinary meeting with a quorum.


Gaffney added that Cambridge will likely bid for the 15 percent which MFK has held in trust for the government. That stock is due to go on the block in a December 1998 privatization auction. "When the shares are put up for tender, our group will bid," Gaffney said Thursday.


Russian bank MFK won the rights to manage the 15 percent stake in a tender held under the much-criticized 1995 loans-for-shares program. It has the right to vote those shares until the block is sold.