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By John Helmer in Moscow

Deripaska is obliged to pay Prokhorov more to leave one uncertainty for a greater one

Oleg Deripaska, owner of United Company Rusal, the global aluminium producer, has invited a small group of reporters to have an Easter luncheon with him at Café Pushkin this Saturday.

The hors d’oeuvre is the announcement, issued this evening, that Rusal has closed its deal with Mikhail Prokhorov to buy his stake in Norilsk Nickel, 25% plus one share, for a 14% stake in Rusal. This is 3% larger than the stake the two had agreed on last December. The change reflects Prokhorov’s concern at the higher risk of holding the unlisted Rusal, with Deripaska in charge.

A press release, just issued by Rusal, did not clarify how much cash Prokhorov will receive in the new deal. The December terms provided him with $4.438 billion on closure, w3ith a deferred payment of $2.7 billion to come on terms that have not been disclosed.

Rusal’s announcement disclaimed the takeover intention that had been emphasized in earlier statements. According to the press release, Rusal CEO Alexander Bulygin said: “We will establish our relationship with the company’s management and other shareholders based on the principles of partnership and contribute to the growth of the company’s value in the interests of all shareholders.”

Rusal also announced that it would be nominating four candidates for the new Norilsk Nickel board to be elected in June — Deripaska, Victor Vekselberg, Alexander Bulygin, plus Tye Burt, the Canadian goldminer now at Kinross.

A press release from Norilsk Nickel was brief, acknowledging Rusal’s acquisition and Prokhorov’s exit. Denis Morozov, CEI of Norilsk Nickel, is quoted as saying: “On behalf of Norilsk Nickel’s management I would like to welcome UC RUSAL as a large shareholder in our Company. The acquisition of such a significant stake demonstrates once again the investment appeal and strong prospects for the further growth of Norilsk Nickel. The management of Norilsk Nickel continues its efforts to strengthen the Company’s leadership in the world mining and metals industry and ensure stability of its activities in the interests of our shareholders, employees and the regions where our operations are located.”

The key terms –“welcome”, “large”, “significant stake”, “the Company’s leadership”, and “stability” – are code words for what sources close to the company believe to be an outcome that is not the best of all possible worlds, but far from the worst either. For Norilsk Nickel and its controlling shareholder, Vladimir Potanin, believe they have seen off Prokhorov, and have also blocked Deripaska from taking control of Norilsk.

Deripaska will have his say on how little he’s gained on Saturday.

It’s highly unusual for press conferences to be held in small Moscow restaurants; this one cannot accommodate more than 25 in its special dining-room. Saturdays are rarely chosen, because they are days without press deadlines, since Moscow’s leading press does not appear on Sundays. It is also extremely rare for Deripaska to take unscripted questions from the press. The last time he remembers, says one of his former handlers, proved to a disaster, when the reporters caught a glimpse of Deripaska’s venom, when he didn’t like the questions asked.

This weekend in Russia, it happens to be Orthodox Easter. It is the custom then to serve Gurievskaya Kasha (“Guriev’s Pudding”), a dessert that has an interesting history. The chef at Café Pushkin isn’t available to say if Deripaska has ordered it for his menu.

Count Guriev was finance minister and special advisor to Tsar Alexander I in the last years of the war against Napoleon, and in the decade that followed. Guriev distinguished himself by doing little, except for stealing. Not the state’s finances, but the recipe for the famous dish. For it had happened that the count was visiting a subordinate for dinner one evening, and when it came time for pudding, he became entranced with the taste. When he asked his host for the recipe, he was politely refused. Later, he made contact with his host’s chef, and paid him to leave his employer’s kitchen, and move to Guriev’s establishment. It is the name of the pudding thief that today graces the dish.

Once Deripaska’s invitations had been delivered, the speculation began that he would either announce the closure of his deal with Mikhail Prokhorov to buy 25% of Norilsk Nickel, and commence his takeover bid for Russia’s largest mining company. Or else, it was guessed, he would acknowledge that he and Prokhorov had changed their minds; and that Deripaska’s Rusal was abandoning the takeover altogether.

The surprise in the latest news is that there is a third way.

To feed the speculation, Deripaska invited two Bloomberg reporters to a pre-Easter luncheon at his Moscow office. While he drank black tea, they read the label on their bottle of 2001 Montrachet. Although the Bloomberg profile has been months in drafting, the reporters couldn’t get Deripaska to say whether he was going to take over Norilsk Nickel, or not. “The plans are still in place,” Deripaska is quoted as saying. “But we’ll see.”

That acknowledged uncertainty was followed by two Deripaska certainties noone believes. Facing a $6 billion or larger claim in the UK High Court for his stakes in Rusal and Basic Element from former partner, Michael Cherney (Mikhail Chernoy), Deripaska had an aide say: “We don’t have any outstanding obligations to Mr. Cherney. Mr. Deripaska does not owe him any money. The rest of it can be sorted out in court.” Cherney’s case resumes proceedings in the High Court on April 30.

Deripaska went even further in a claim regarding President Vladimir Putin. “He does not need our consultation,” he said. “It’s a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want.” When he was wining a reporter from the Financial Times last July, Deripaska was categorical in the opposite direction. “If the state says we need to give it [Rusal] up,” he said then, “we’ll give it up. I don’t separate myself from the state. I have no other interests.”

What exactly is happening to Deripaska’s bid to take control of Norilsk Nickel is now being fed by a blitz of crumbs from Deripaska’s table. On Thursday morning, a Moscow newswire with no prior record of closeness to the transaction claimed that Rusal had closed the deal to buy 25% plus one share from Prokhorov, and would make an official announcement by evening. Onexim, Prokhorov’s holding, was quoted by the wire as saying: “for us, the transaction is not closed yet.”

Inside Onexim, confusion and uncertainty prevailed. One of Prokhorov’s subordinates conceded that he was getting ready to take a holiday after the transaction closes, but he wasn’t certain, or wasn’t saying, which transaction he meant. Asked to say if Prokhorov had resumed negotiating with Vladimir Potanin, his former partner and controlling shareholder of Norilsk Nickel, Alexei Ryabinkin, an Onexim spokesman, said “we are not commenting.” Mineweb then asked whether Prokhorov wished to retain his Norilsk Nickel shares for a while longer, in order to achieve greater exit value? Ryabinkin replied: “There is an agreement, and within the framework of that we are acting.”

Following on the wire reports, the Moscow stock market started to cut Norilsk Nickel’s share price. Lehman’s metals analyst in Moscow, Vladimir Zhukov, issued a market note, explaining that “there might be some short-term negative reaction. Given that Norilsk stock has been flat lately, despite some positive momentum in global metal prices and stocks, we suggest that this news has been possibly priced-in by the market. However, we don’t rule out some initial short-term negative market reaction to the official announcement (of course, subject to it is being proven true) for all the reasons we have been talking about for the past six months.”

Zhukov was not convinced that a Rusal buy-in precludes the completion by Potanin of the acquisition of the iron-ore miner and steelmaker, Metalloinvest. That transaction, reported by Mineweb since March, is likely to give Potanin and his allies de facto control of Norilsk Nickel, and sufficient voting power to block Rusal from going any further than its 25% stake. According to Zhukov, the “potential transaction with Metalloinvest still remains a possibility. A potential merger with Metalloinvest could propel Norilsk into a sizeable position in iron ore, in our view, and still remains a strong positive catalyst for Norilsk Nickel and we believe that UC RUSAL has good reasons not to block it. Although RUSAL has indicated an ambition for a full merger with Norilsk, it has never made a formal proposal, and we suggest that RUSAL may ultimately support a Norilsk merger with Metalloinvest, as it will likely to increase the value of its Norilsk stake.”

Zhukov concludes that Rusal “is unlikely to end up in control of Norilsk.” He isn’t sure whether Potanin is likely to build his defensive stake against the Deripaska takeover by negotiating to hold Rusal’s stake to 25%, or by avoiding Rusal altogether. In the latter scheme, Zhukov claims the “ potential ‘bypass’ structure, for instance, can be implemented via acquistion of Metalloinvest in tranches, each valued below 25% of the value of assets of Norilsk Nickel and thus requiring only approval of majority of the Norilsk Nickel’s Board.”

Metalloinvest is held in three tranches, the size of which has never been confirmed by the stakeholders: 20% by Vassily Anisimov; 30% by Andrei Skoch; and 50% by Alisher Usmanov, though there has been market speculation that Usmanov’s stake is partly held on trust for Gazprom. Mineweb has been told that while UBS is conducting a valuation of Metalloinvest, and a structuring of a transaction for exchange of shares and cash, Potanin’s negotiations have been limited so far to Usmanov.

The prevailing sentiment in Moscow is that the Kremlin will not permit Deripaska to complete two of his most ambitious acquisitions – that of Mikhail Gutseriyev’s Russneft oil company, for which Deripaska has already paid several billion dollars into escrow, but for which he has received no permission to take the assets; nor the takeover of Norilsk Nickel. Does this mean that Deripaska believes he has received Putin’s green light to take Prokhorov’s 25% stake, and no more?

A senior investment banker in town flashed his Blackberry assessment: “why would [Deripaska] agree to this? Being a minority shareholder is not something anyone does voluntarily.”

Interros, the Potanin holding, will say nothing officially on its negotiations with Metalloinvest, nor on the expected distribution of Norilsk Nickel’s shareholdings, after the Rusal and Metalloinvest transactions are decided.

Sources familiar with the thinking in the Potanin camp believe two things.

The first is that Prokhorov is finished as a decision-making power in Norilsk Nickel. It is believed that his exit into Rusal will be followed by his exit out of Polyus Gold. These outcomes relieve Potanin of the two biggest thorns in his side.

At Onexim, it has been understood for weeks now that Prokhorov wants to exit Russia as soon as possible, and his investment advisors have been told to concentrate their dealmaking and capital spending plans on non-Russian assets. Prokhorov may have some fresh explaining to do to his underlings as to how a 14% chunk of the unmarketable Rusal accomplishes that objective.

The second understanding of those close to Interros is that Potanin has the administrative resources — read green light from the Kremlin — to put together a control stake in Norilsk Nickel; and to stabilize management and cashflow safely out of Deripaska’s hands.

In cuisinary terms, that means that Potanin is to have the cherry and the apricot on the cake. Deripaska is to be left with the kasha.

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