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. Last Updated: 07/27/2016

Potanin Puts His Passion Into Metals Plan

Itar-TassPotanin leaving the Ritz-Carlton hotel on Tverskaya on May 30, after chairing a conference on corporate governance.
Read the full Potanin Interview

Sitting in the stylish bar on the top floor of his office near Polyanka, Vladimir Potanin used chess and Chinese philosophy analogies to map out his business strategy — and backed Russia to qualify from its group in the Euro 2008 football championship.

Wearing a smart black suit and dark blue shirt, the metals, banking and media magnate worth some $22.4 billion, according to Forbes, gesticulated energetically and shifted restlessly in his chair as he talked with some passion for two hours on a hot afternoon ahead of last weekend's St. Petersburg International Economic Forum.

Between sips of black tea, Potanin expounded on his hopes to form a global metals giant with fellow billionaires Oleg Deripaska and Alisher Usmanov. He also urged the state to refrain from imposing too many controls on private business, both domestic and foreign, and cited Confucius as to why Russian society should not hate the rich, but value their contribution.

On the thorny and topical issue of shareholder conflicts, Potanin recalled the pain of his protracted divorce from longtime business partner Mikhail Prokhorov and said the TNK-BP affair — far from being political — showed that any Russian business could face disputes with foreign partners when it competed at home and abroad.

Potanin and Prokhorov, who share the fifth and sixth spots on the latest Forbes Russia list, last month finally reached an agreement on dividing most of their $30 billion in jointly held assets, after nearly 1 1/2 years of negotiations.

The announcement on the asset split came after Prokhorov, often described in Russian tabloids as the country's most eligible bachelor, hit the headlines over his January 2007 arrest in French ski resort Courchevel. He was freed a few days later after being cleared of involvement in an alleged prostitution ring.

The split left Prokhorov's Onexim with 91 percent of insurer Soglasiye, 27.5 percent of developer Open Investments, about 30 percent in Polyus Gold, 25 percent in Norilsk and some geological assets. Potanin's Interros, through full control of investment vehicle KM-Invest, got some 30 percent in each of Norilsk, Polyus and Open Investments, 40 percent of Rosbank, full control of Prof-Media, and some other assets.

The settlement was rather different from the one the two men had planned initially, however, which Potanin said was down to inconsistency on Prokhorov's part.

"We agreed that I would buy out Misha's interest in Norilsk Nickel and that he would take the electricity assets. … Last fall, he changed his mind. He said he didn't want to buy those assets anymore and questioned their efficiency."

In a step that Potanin said "came as a surprise," Prokhorov this year sold his blocking stake of 25 percent plus one share in Norilsk to Deripaska's aluminum giant, United Company RusAl.

"It came as a revelation that such a prominent businessman would do something like that, breaking all our previous agreements," Potanin said. "Prokhorov had promised Usmanov and me to sell us Norilsk, and buy Polyus, but he avoided doing this. A businessman of such a level should be very coherent and predictable, not be a … Zhirinovsky in business," referring to flamboyant ultranationalist politician Vladimir Zhirinovsky.

In the last remaining battleground between the two men, Polyus Gold, Potanin said he would fight for the company, but only ethically.

"I never do something in business that I wouldn't do in life. … I will not cross certain lines."

Prokhorov's Onexim Group offered late last month to buy a 6.54 percent stake in the company, but Polyus management refused the offer, saying it would lead to a loss of shareholder value by generating more cash than was needed for growth.

"Even a child would understand that Prokhorov is controlling Polyus and that Yevgeny Ivanov, the general director, is his man," Potanin said. "[So] when he makes such an offer and Ivanov says no, it means that the offer was made not with the aim of a purchase but with some other private aim — PR for the minority shareholders."

Potanin added that there were "no deals on Polyus between Prokhorov and me now."

After the Prokhorov divorce, Potanin said he was looking for new partners and was seeking to "diversify [Interros' interests] geographically and industrially, as we are currently overexposed on metals and in the Russian market."


Vladimir Olegovich Potanin

Birthdate: Jan. 3, 1961

Birthplace: Moscow

Education: Moscow State Institute of International Relations, degree in international economics, 1983

Business Career:

1983 – 1990 — Worked in the Soviet Foreign Trade Ministry

1990 – President of the Interros foreign trade association

1992 – 1993 — Vice president and then president of MFK bank

1993 – President of Uneximbank, chairman of MFK

August 14, 1996 – March 17, 1997 – First deputy prime minister under Prime Minister Viktor Chernomyrdin. Oversaw economic policy, including the Economic Ministry, the State Committee for Anti-Monopoly Police, the State Property Committee.

May 1997 — President of Uneximbank

May 26, 1998 — President and chairman of Interros (after a restructuring of holdings including Uneximbank (absorbed by Rosbank in 2000) and MFK (merged into Rosbank in Feb. 2002)

Marital status: Married with three children

Hobbies: Traveling, badminton, downhill skiing, water sports and chess

In future, Interros would focus more on asset management, Potanin said, referring occasionally to carefully handwritten notes on the table in front of him as he outlined his strategy. "It's a good time to do this, as the financial activity and savings of the population are growing," he said.

Central to Potanin's plans appears to be his united front with Usmanov in Norilsk, which emerged after RusAl looked likely to mount a hostile takeover for Norilsk. On May 28, Potanin, who holds 30 percent of Norilsk, and Usmanov, who owns half of iron ore giant Metalloinvest, said they wanted to pool their assets to form a new metals champion — and invited Deripaska to join them.

"In such a big company as Norilsk Nickel, we have to form partnerships. To try to get more than 50 percent in the company would be unnecessary. In chess there is a term for this — overprotection. No overprotection is needed in Norilsk. That is why we got the idea of forming a partnership" with Deripaska, Potanin said.

Deripaska has not replied to the offer yet, and "may need some time to analyze the situation and understand it," Potanin said. "The difference between the companies, their maturity and people's personal ambitions will make the negotiations harder."

In the end, profitability would be seen as the most important issue, he said.

On whether the Kremlin would back a three-way deal, Potanin said such approval was "inevitable, and quite correct. … Such things are not done in any other country without the government's approval."

As one of the closest oligarchs to the Kremlin, it was perhaps no surprise that Potanin called for lessening the state's involvement in business and for welcoming foreign investment — a theme closely in tune with the keynote speeches delivered in St. Petersburg at the weekend by President Dmitry Medvedev and First Deputy Prime Minister Igor Shuvalov.

The state is currently "even stronger than it would like to be. … It would be good for the state to share some of its functions," he said.

He also warned against "a fear of foreign investment."

"We invite foreign investors and at the same time talk about national security and the strategic sectors that foreigners should not invest in," Potanin said. "I look at it this way: When the state defends its interests through owning property, that means that it is not skillful enough in using other, more suitable, tools."

But the government should get involved, Potanin said, to help boost the public image of businessmen, whom he called "the engine of the economy."

"I always remember Confucius' saying: 'The well-managed country is ashamed of its poor, and the poorly-managed country — of the rich.' We have to prove to society that our work is useful, like that of the fireman or the teacher," he said.

State officials should not forget, he added, that "they live on the taxes paid by business, from money that could be paid out to pensioners and the disabled."

The oligarchs' relations with the Kremlin were now quite clear, Potanin said. "They are quite reasonable people there in the Kremlin, and they understand how things work. The Kremlin usually says: 'You negotiate and arrive at a conclusion, then come and discuss it with us. If we like it, we will support it. If not, we will tell you exactly what we don't like.' It's all very clear. It's not very different from in any other well-managed country."

He added that only "really big" deals were discussed with the Kremlin.

On the current hot-button issue for foreign investors, TNK-BP, Potanin said he did not see any politics in the shareholders' dispute. "Any of us can face this situation at any moment: for example, if someone invests in a foreign company that is his competitor on the Russian market," he said. "Mikhail Fridman's Alfa Group turned out to be the first to face this on such a scale."

More attractive sectors to invest in are retail and entertainment media, in part, as they are "the least politicized," Potanin said.

After answering questions for more than 90 minutes — well over the allotted time for the interview — Potanin was told by an aide that he would miss a waiting plane unless he immediately left for the airport.

Brushing off the warning, Potanin said, "The plane will wait," and took a last question: about Euro 2008, in which Russia lost its first match Tuesday.

"I am very worried that some key players have found themselves out of the team," said Potanin, who is known as an ardent football fan. "Pogrebnyak is out with an injury, Arshavin is serving out a ban, Bystrov hasn't recovered from his injuries. But given our team's level, we should qualify from the group. We'll be ashamed if we don't."

Read the full Potanin Interview