Russian tycoon becomes Norilsk CEO in board peace deal

MOSCOW Mon Dec 17, 2012 2:21pm GMT

Norilsk Nickel Chairman Vladimir Potanin (L) listens as Oleg Deripaska, UC RUSAL's majority owner, speaks during a news conference in Moscow November 25, 2008. REUTERS/Sergei Karpukhin

Norilsk Nickel Chairman Vladimir Potanin (L) listens as Oleg Deripaska, UC RUSAL's majority owner, speaks during a news conference in Moscow November 25, 2008.

Credit: Reuters/Sergei Karpukhin

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MOSCOW (Reuters) - Norilsk Nickel (GMKN.MM) named longtime co-owner Vladimir Potanin as its chief executive on Monday under a deal to end a boardroom war at the world's top nickel and palladium producer.

Kremlin-backed oligarch Roman Abramovich will take control of a 20 percent voting stake to act as a buffer between Potanin and rival Oleg Deripaska, who owns a share in Norilsk through UC RUSAL (0486.HK), the world's largest aluminium producer.

Speaking after his unanimous election by the Norilsk board, Potanin said he planned to stay in the job for between 18 months and two years. The peace deal will last for 10 years, with the core shareholders agreeing to keep their stakes for five.

Abramovich, the billionaire owner of Chelsea football club, could also act as a conduit for the Kremlin at the cash-rich company that mines the vast mineral deposits of Russia's far north.

Having brought an end to the four-year feud between Potanin and Deripaska, he could potentially end up sidelining them as President Vladimir Putin seeks to restore order at the $30 billion miner that was privatised in the mid-1990s.

Deripaska and Potanin now lose their blocking voting stakes and Abramovich steps in with the ability to serve the president's interests early in his new six-year term.

"Roman Abramovich is a businessman who wants to make money," a well-connected industry insider said of the deal. "Norilsk Nickel is a cash machine that doesn't need to fear a crisis."

Alexander Abramov, Abramovich's partner in Evraz (EVRE.L), Russia's largest steelmaker, is to become board chairman at Norilsk Nickel, a source said. Norilsk's shareholders will elect a new board on March 11.

The company will pay around half of its core earnings, expressed as earnings before interest, depreciation and amortisation (EBITDA) in dividends over the next few years, said Potanin. It will start paying dividends twice-yearly in 2014.

Vladimir Strzhalkovsky, who like Putin served in the Soviet KGB security force, steps down as CEO - a demand by Deripaska that Potanin had resisted.

Sources close to the company's shareholders said last week that Strzhalkovsky, who sided with Potanin and launched a series of buybacks during the dispute over Norilsk Nickel's cash flows, would have a $100-million severance deal.

UNLIKELY APPOINTMENT

The appointment by the Norilsk board of Potanin, a survivor of the battles between the businessmen who struck it rich after the collapse of the Soviet Union in 1991, had appeared unlikely until the deal was reached this month.

Potanin left the Soviet trade ministry and created a banking empire in the early 1990s - securing control over Norilsk at a bargain-basement price in the loans-for-shares privatisations that he masterminded.

His stake at Norilsk Nickel was one of the biggest prizes handed to insiders in the post-Soviet carve-up of Russian industry in 1995, a process that spawned a new oligarch elite.

Putin reined in the tycoons after he rose to power in 2000, and signalled last week he was intent on tackling some of the problems that continue to blight Russia's business scene after 13 years as the country's dominant leader.

Sorting out problems at Norilsk Nickel would help enhance Russia's image among foreign investors.

HANDS-ON MANAGER

Potanin, 51, is ranked the 46th-richest man in the world, with a fortune estimated at $14.5 billion by Forbes magazine.

He had long rejected a direct role in managing the company, saying he preferred to leave the day-to-day running of the company to professional managers.

Despite the deal, it is not clear whether a balance of power has been reached at the management level.

Analysts said the company needed to boost efficiency and transparency, but expressed concerns that paying out dividends could take precedence over capital investment now running at about $2.5 billion per year.

"The first step that can be expected is a decrease in capital expenditure and operational cost cutting," Vadim Astapovich, an analysts at VTB Capital, said.

Looking further out, Norilsk could revisit the idea of merger and acquisition deals that were forced off the agenda by the shareholder dispute, Astapovich added.

Trouble broke out at the Arctic giant after the global financial crisis in 2008 when Deripaska, who had bought out Potanin's partner Mikhail Prokhorov with a view to merging Norilsk with his aluminium firm RUSAL (0486.HK), defied pressure to exit to cut his own debts.

Under the peace deal, Deripaska will finally prevail in his demand for hefty dividend payouts, which sources have said could total $10 billion over three years, forcing the company to borrow to cover the cost.

The Vedomosti daily quoted sources on Monday as saying Abramovich and Abramov, plan to buy up to 10 percent of Norilsk shares.

Abramovich will hold 5.87 percent of Norilsk Nickel, RUSAL will hold 7.8 percent and Potanin's Interros will hold 30.3 percent after Norilsk's treasury shares - amounting to almost 17 percent of its issued capital - are cancelled.

To ensure Abramovich's role as enforcer of the peace, the other two billionaires will give him voting power over some of their shares. That will leave the three billionaires with nearly equal voting stakes but means Abramovich can impose a resolution in any dispute between the other two. (The story is corrected to make clear in third graph that core shareholders will keep stakes for five years)

(Addditional reporting by Andrey Kuzmin; Editing by Melissa Akin, Timothy Heritage and Anna Willard)

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