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By John Helmer in Moscow

Trojan horse in reverse — Vekselberg & Potanin attack Rusal

Laocoon the Trojan is on record as warning not to trust the famous wooden horse; nor the Greeks bearing gifts. But he, Homer and Virgil can’t help with the corporate raider’s version of the Trojan Horse ploy. This is –if you are planning to attack with the horse, make sure all your men inside are on your side.

Vladimir Potanin, co-owner of Norilsk Nickel, Russia’s dominant mining company, may be going into the June 30 AGM, with one vote no-one had anticipated, least of all his adversary and attacker, Oleg Deripaska, the controlling shareholder of United Company Rusal. That vote is Victor Vekselberg’s, who (with partners) controls 18.9% of Rusal; and who, for the time being, is chairman of the Rusal board.

Potanin has begun negotiating with Vekselberg for a transaction that may exchange the latter’s unlisted, unpriced Rusal shares for the former’s much more valuable Norilsk Nickel stock. First word was leaked publicly last week by Alisher Usmanov, who has also thrown his 50% stake in Metalloinvest – an iron-ore mining and steelmaking group – on to Potanin’s side, and against Deripaska’s attempt to seize control of Norilsk Nickel. Sources at Interros, Potanin’s holding, have told Mineweb: “We don’t hide that there have been consultations with Vekselberg regarding the creation of the joint company.”

Asked whether, in these talks, Vekselberg represents Rusal as a company, co-ordinating with Deripaska (58.9%) and Mikhail Prokhorov (14%), Vekselberg’s spokesman, Andrei Shtorkh said he is acting on behalf of the Renova group – that is Vekselberg’s personal holding. Shtorkh once wrote for a living, and he uses his tenses very precisely. He told Mineweb that Vekselberg hasn’t started talking yet, and that therefore “it is too premature and improper to conclude what the outcome will be”.

As a schoolboy, Oleg Deripaska has been described by his teachers and acquaintances as especially clever at mathematics. He still stays up at night, his friends report, studying business manuals. He seems to have missed the classics, though. Between last December and this May, when he drove his Trojan Horse into the Norilsk Nickel camp, with a 25% stake bought from Potanin’s former partner Prokhorov, Deripaska didn’t imagine that Vekselberg might change sides, and do a separate deal with Potanin. Even more unimaginable, Deripaska didn’t believe that Potanin could end up with Vekselberg’s stake in Rusal.

Vekselberg, Deripaska, and Rusal chief executive Alexander Bulygin are standing as candidates for the new Norilsk Nickel board, to be voted on June 30. Mineweb has already reported on how the market should read the voting card, and the outcome of Monday’s ballot for the nine places on the board: http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=54964&sn=Detail
Prokhorov is standing for himself, and he has invited Kinross executive, Tye Burt, to run as an independent. Kinross spokesman James Crossland told Mineweb : “It is no secret that Mr Burt has met and discussed business opportunities in the mining sector with many business leaders in the Russian Federation — including Messrs Prokhorov and Deripaska. However, Mr Burt does not have a “beneficial relationship” with, or any business investments in, any company controlled by either Mr Prokhorov or Mr Deripaska.”

If the Rusal trio wins election; if Prokhorov and Burt win seats; and if independent Guy de Selliers is reelected with Rusal backing him to become chairman, replacing Andrei Klishas, then Deripaska will have scored a sizeable victory. If Rusal manages to get only Deripaska and Vekselberg on the new board; and if Prokhorov and Burt fail, then the outcome for Deripaska will look like a decisive defeat.

However, it is in the nature of Vekselberg’s move towards Potanin that — win, lose or draw for the NorNick board — Deripaska is threatened, for the first time, with the break-up of Rusal itself.

Actually, it is not the first time. Evidence presented in Mikhail Chernoy’s (Michael Cherney) High Court case, now pending against Deripaska in London, reveals that in 2000-2001, Deripaska was threatened with the loss of his control of Rusal, when Chernoy was approached by Vekselberg, and offered a billion-dollar sum to buy him out. Chernoy’s evidence suggests that Deripaska made his March 21, 2001, agreement with Chernoy, promising to list Rusal within three years and buy Chernoy’s 20% stake, in order to ward off the threat that Vekselberg would take the stake first. Had Chernoy agreed, and Vekselberg consolidated Chernoy’s 20%, Deripaska’s position in Rusal would have been relegated by Roman Abramovich, Boris Berezovsky, and Vekselberg. In time, Vekselberg would have become the Russian aluminium giant of today, and Deripaska the dwarf.

Vekselberg still smarts, a formerly close associate tells Mineweb, from losing the opportunity to list SUAL on the London Stock Exchange, and retain his status as a global commodity producer. Instead, the Kremlin was persuaded to let Deripaska consolidate aluminium in the Rusal structure. That relegated SUAL to minority status in Rusal, and Vekselberg to minority stakeholder. He is trying to convert that into becoming a producer again, albeit in the much smaller economy of Switzerland, where he is taking control of high-tech machine-builders, Oerlikon and Sulzer. Vekselberg’s five-year effort to become a global miner, starting in South Africa, has proved to be much less successful than he has managed, at twice the speed, to pull off with the obliging Swiss.

At home, Vekselberg’s move with Potanin puts Deripaska over another historical wooden object – the barrel. For the richest man in Russia cannot convince Vekselberg that he can meet his listing and buy-back commitments, which fall due next year. Vekselberg is also aware that Prime Minister Vladimir Putin’s apparent agreement with Potanin prevents Deripaska from taking a control stake of Norilsk Nickel, and achieving a reverse listing that way.

Referring to their candidacies for the board in Monday’s shareholder vote, a source close to Potanin’s thinking, told Mineweb that Deripaska’s attack has an Achilles Heel – he isn’t trusted by his own partners. “I think that both Prokhorov and Vekselberg are trying to secure themselves against dealing with Deripaska — Prokhorov through a board seat at Norilsk Nickel, and Vekselberg with his separate negotiations.”

The metals analyst for a senior US investment bank interprets Vekselberg’s acceptance of Potanin’s invitation to negotiate as a boon to Potanin’s negotiating strategy, and a threat to Deripaska. “If Deripaska — possibly stretched in his ability to raise money — cannot come up with the cash to pay Vekselberg and Blavatnik, they may as well see what Potanin has to offer.” In this scenario, the banker anticipates that Deripaska might have to withdraw from Norilsk Nickel, and sell his part of the 25% stake (15%), in order to ward off the danger Potanin would pose to Rusal.” Potanin’s offer to Vekselberg “shows respect to Vekselberg as a significant party, whereas he is the junior partner in Rusal. It will not hurt to have Vekselberg on Potanin and Usmanov’s side, if Vekselberg gets convinced of the benefits of a big merger.”

None in the Moscow market doubts that Vekselberg is playing his own game. The unexpected significance is that he is signaling he is reluctant to continue as Deripaska’s hostage inside Rusal, where Deripaska is weakened by high corporate debt, the prospective fall in the commodity price, the Chernoy claim, and the difficulty of achieving the high-value share listing he has promised everyone.

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