BREAKINGVIEWS-Norilsk's dividend slash shows Deripaska the exit

Thu Jan 20, 2011 12:30pm GMT

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-- The author is a Reuters Breakingviews columnist. The opinions -- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

By Jason Bush

MOSCOW, Jan 20 (Reuters Breakingviews) - In the long-running shareholder row at Norilsk Nickel (GMKN.MM), one of the combatants may soon be ready to throw in the towel. Pressure is mounting on Oleg Deripaska to sell the 25 percent Norilsk stake owned by RUSAL (0486.HK), the aluminium group he controls. In a fresh blow to the Russian oligarch, Norilsk has hinted that it may pay no dividends this year, even though the company sits on piles of cash -- it earned some $5 billion in post-tax profit last year.

Arguments about distributing Norilsk's cash are at the root of the conflict, which has pitted RUSAL against both Norilsk's management and its other core shareholder, the Interros Group of Vladimir Potanin. RUSAL has been pressing for high dividends, which would help it repay its $12 billion debt. By going ahead with buy-backs instead, Norilsk is ensuring that RUSAL can't share in its profits.

The aluminium group can't even benefit from the buy-backs, potentially worth up to $4.5 billion this year, since its stake is pledged against bank loans. As returned shares are owned by Norilsk subsidiaries and voted by management, they also give Norilsk and Interros even more means to outmanoeuvre RUSAL at future shareholder meetings.

Little wonder RUSAL is seeing red over this shabby treatment. But Deripaska seems to be fighting a losing battle. He has called another EGM in March, where he will again try to rally support from western investors. But with the initial buy-back at 6.2 percent of Norilsk's shares, the voting arithmetic looks even worse than before.

This all adds to the pressure on Deripaska to sell out of Norilsk. After rejecting a $13 billion offer from Norilsk in December, RUSAL is now wavering. Deripaska's partners, Mikhail Prokhorov and Viktor Vekselberg, are rumoured to support a deal.

Deripaska can also expect a juicy carrot after suffering from the sticks. Norilsk's previous offer valued RUSAL's stake at a premium of some 20 percent over the market price, and it may sweeten it. Soon, Deripaska could receive an offer even he can't refuse.

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CONTEXT NEWS

-- Russian media reported on Jan. 20 that Norilsk Nickel may pay a zero dividend for 2010, citing sources close to the company's board of directors. The company intends to spend $4.5 billion on share buy-backs this year, including $3 billion on the buy-back of 6.2 percent of Norilsk shares that was launched in December and will close on Jan. 21.

-- Negotiations are continuing between Norilsk and RUSAL over the possible purchase of RUSAL's 25 percent stake in the company. A source close to the negotiations told Reuters on Jan. 19. that two big RUSAL shareholders want the company to sell the stake. "(Viktor) Vekselberg and (Mikhail) Prokhorov indicated that they are supporting the continuation of the talks (about the stake sale)," the source told reporters, referring to two Russian businessmen who own around a third of RUSAL.

-- RUSAL, majority owned by Deripaska, rejected an offer from Norilsk to buy the stake in December. Norilsk said it offered $13 billion, although sources close to the firm put the figure higher, at $14 billion. In a statement, RUSAL "emphasized that its stake in MMC is a strategic investment, and that the company does not intend to sell it." However, a source close to Norilsk's shareholders told Reuters that Deripaska would be willing to sell the stake for $16 billion.

-- RUSAL is engaged in a public dispute with both Interros Group and Norilsk's management. It has called for management changes and launched legal action to overturn the outcome of Norilsk's annual general meeting, held on June 28, after losing one of its four representatives on Norilsk's board. RUSAL failed in an attempt to reverse the June vote at an Extraordinary General Meeting in October, despite its intense lobbying of western minority investors, who hold some 30 percent of Norilsk through American Depositary Receipts.

-- Reuters story: RUSAL co-owners still back Norilsk sale - source [ID:nLDE70I20D]

-- For previous columns by the author, Reuters customers can -- For previous columns by the author, Reuters customers can click on [BUSH/]

(Editing by Pierre Briançon and David Evans)

((jason.bush@thomsonreuters.com)) Keywords: BREAKINGVIEWS NORILSK/