BREAKINGVIEWS-Deripaska may not refuse new Norilsk buyout offer

Mon Feb 14, 2011 10:15am 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, Feb 14 (Reuters Breakingviews) - The end of the three-year long shareholder spat at Russian miner Norilsk Nickel (GMKN.MM) may be in sight. Oleg Deripaska, whose RUSAL (0486.HK) group owns a 25 percent stake in the Russian miner, has received an offer even he must find hard to resist. Norilsk is offering him $12.8 billion to buy four-fifths of his stake in the company

-- a thumping 40 percent premium to current market price. The -- a thumping 40 percent premium to current market price. The end of Deripaska's nickel ambitions would come with a handsome profit, which would allow RUSAL to pay off its debt in one go.

The offer represents a significant improvement on Norilsk's proposal last December to buy RUSAL's entire 25 percent stake for $12 billion. It also envisages a two-year agreement under which Norilsk would direct the voting and disposal of RUSAL's remaining 5 percent.

Whereas RUSAL derisively dismissed previous offers, this time it has responded tersely that the latest one will be considered. Two of RUSAL's core shareholders, Mikhail Prokhorov and Viktor Vekselburg, had already been warming towards a sale. Deripaska himself was rumoured to be willing to sell the stake for $16 billion. The offer of $12.8 billion for 80 percent of that stake implies that his valuation target has been achieved.

In any case Deripaska will be hard-pressed to do better. The $16 billion valuation would imply a tidy profit over the $14 billion that RUSAL is estimated to have paid for its Norilsk stake in 2008. RUSAL could always argue that there is still plenty of hidden value in Norilsk, but even then it would be hard to see how this could justify rejecting the bird in the hand for uncertain future rewards. After all, the implied $64 billion valuation for Norilsk is well above the $50 billion that RUSAL said it was targeting five months ago. Meanwhile, RUSAL continues to chastise Norilsk for wretched corporate governance, which if anything is deteriorating as Deripaska's opponents strive to outmanoeuvre him.

Deripaska still has some cards left to play, including a recent court injunction in the West Indies that may block the voting rights of Norilsk subsidiaries. But his chances of reasserting his diminishing grip over Norilsk are slim. By accepting such a handsome pay-off, he would in effect have played his weak poker hand with great skill.

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CONTEXT NEWS

-- Russian mining giant Norilsk Nickel made a new offer on Feb. 11 to buy out aluminium company RUSAL, a 25-percent shareholder in Norilsk. Norilsk proposed that one of its subsidiaries would buy a 20 percent stake in Norilsk from RUSAL for $12.8 billion. RUSAL and the buyer would also enter into a two year shareholders' agreement which would provide the buyer with rights to direct the voting and disposal of the remaining Norilsk shares held by RUSAL. The proposal lapses at 1800 Moscow time on March 4.

-- Responding to the proposal, RUSAL said in a brief statement: "The Board of Directors of RUSAL, in accordance with the internal corporate procedures, instructed the Norilsk Nickel committee of RUSAL Board of Directors, to examine and discuss the offer received."

-- In December, Norilsk offered to buy all RUSAL's 25-percent stake for $12 billion. RUSAL responded quickly to the previous Norilsk offer by rejecting it. "For RUSAL an investment in Norilsk Nickel is a strategic one and we do not intend to sell our stake," it said.

-- RUSAL is engaged in a public dispute with both Interros Group, which also owns 25 percent in Norilsk, and Norilsk's management. It has called an Extraordinary General Meeting of Norilsk shareholders on March 11, where it hopes to vote out the board of directors and elect new representatives. RUSAL failed in a similar attempt at an Extraordinary General Meeting in October.

-- Norilsk statement: here

-- RUSAL statement: here

-- Reuters story: -Norilsk offers $12.8 bln for RUSAL's 20 pct stake [ID:nLDE71A1IO]

-- 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/