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By John Helmer in Moscow

Russian oligarchs use the media for pressure on price and financing terms for change of ownership at Norilsk Nickel.

The Arab bedouin had a term for it – the jackals’ wedding. That’s a marriage of convenience between angry dogs, who couple for a single night, and then bite each other, as they pursue their own game for the rest of their lives.

This week, at a party-political rally in Moscow, President Vladimir Putin also referred to the rule of oligarchs as rapacious dogs. “They want to come back,” he said, of the factions which had ruled Russia during the Yeltsin period, “to return to power, to spheres of influence, and gradually restore oligarchic rule based on corruption and lies. Unfortunately, inside the country there are those who scrounge at foreign embassies, importune diplomatic missions, count on the support of foreign funds and governments, and not the support of their own people.”

A day later, Mikhail Prokhorov summoned the Financial Times – the newspaper whose reporting had celebrated oligarch rule a decade ago-to lay out his terms for sale of a 25%+1-share stake in Norilsk Nickel at $330.30 per share, amounting to 47.7 million shares for US$15.7 billion in cash, agreed within 30 days, and delivered within 45.

If his co-shareholder and former partner Vladimir Potanin couldn’t come good with the money, Prokhorov has also pulled out the Khrushchev shoe ploy, banging the table with the threat that he has another buyer, oligarch Oleg Deripaska, who might come good with the money. Deripaska controls the Basic Element holding, and United Company Rusal, the aluminum maker which failed to launch a LSE listing this year.

The unlisted Rusal may have a market capitalization of US$30 million, of which Deripaska’s share would be less then $20 billion, on paper. Norilsk Nickel, the world’s leading producer of nickel and palladium, is listed with a sizeable free float. It has a current market value of $53.7 billion. That is up 77% since January, but down 6% in the past week. Even the Russian market can find the barking of jackals unappealing.

Deripaska–who has been short of cash himself as he faces multiple liabilities, pay claims, and an asset divorce–ought to have considerably more difficulty in raising Prokhorov’s cash than Potanin, unless the Russian state funds the deal. For that to happen, Putin would have to be personally persuaded that the Russian national champion in aluminum could be coupled with the national champion in nickel, and Rusal would skip its LSE listing altogether.

Putin’s attack on the oligarchs this week was his first in a long time. Its political significance can be interpreted as a revival of Putin’s last presidential campaign attack, in 2003-2004, on the oil oligarch Mikhail Khodorkovsky.

To the political elite in Moscow, this also appears a sign that Putin’s mind is wavering, and that he may not finally relinquish the presidency next March. The reason has been visible for weeks, since the appointment of Victor Zubkov as prime minister – Putin doesn’t, and cannot, trust those around him to accept a stable transition. In such a circumstance, can Putin be seriously contemplating allowing three oligarchs to divide up most of Russia’s mineable resources between two of them, and promote Deripaska to be the single most powerful oligarch in the land?

This defies the political and commercial logic Putin has followed since he emerged from under Boris Yeltsin’s shadow eight years ago. Prokhorov is guessing that if he strews enough meat in the path of the lion, the jackals can bark, but do no more.

He cannot have been thinking of Putin’s latest warning, nor of the Kremlin’s view of the London media, when he placed his sale offer in the FT. But then Prokhorov’s biggest disadvantage in the division of Norilsk Nickel’s assets, under way since January, is that Prokhorov lacks a Kremlin backer and Putin’s endorsement.

Therefore, Prokhorov has applied through the FT for permission to sell through an oligarch he imagines might be better connected than himself to the Kremlin. He is also guessing that, at this stage of the Russian election cycle – parliamentary elections in two weeks’ time, the presidential election in four months – his asking price might generate more than the normal level of appetite for a quick deal. At $15.7 billion, Prokhorov’s offer is 8% bigger than the price at which another Yeltsin-era oligarch, Roman Abramovich, sold his oil company Sibneft to Gazprom; until now, that has been the biggest transfer of an oligarch resource asset back to the state on market terms.

The FT advertisement reads as follows: “Mr Prokhorov said Thursday that he was now considering the sale of his strategic stake because the company is no longer going to grow so quickly in value. He said this was the reason that he made the compromise offer to Mr Potanin. He could sell the stake to a third party, including Rusal, if Mr Potanin was unable to meet his terms. “Rusal is one of the companies that is potentially interested,” he said….”I know Rusal quite well and I understand its strategy but its main advantage lies in the fact that it owns energy capacity that allows it to get cheaper energy than its competitors … This question [of a merger] has to be studied more deeply.” But he said he could be ready to sell his shares. “If a businessman has a business that is not for sale then this is a hobby. I keep my hobbies separate from business,” he said. “There is always a price for which you can sell an asset even if you like it. “There isn’t anything that isn’t for sale as long as there is a price,” he said.”

The Kremlin’s general attitude towards Prokhorov’s pricing was made clear a few days ago, when Finance Minister Alexei Kudrin announced that Alrosa, the wholly state-owned diamond miner, wouldn’t consider Prokhorov’s offer of his stake in Polyus Gold. He said the reason is that Prokhorov is asking too much. Kudrin is a soft and kindly fellow; there are others in the Kremlin who may take the view that Prokhorov is a concessionaire of both Norilsk Nickel and Polyus, not a proprietor in the usual sense. The hint is that Prokhorov’s asset acquisition history, his tax records, and other archives might recommend that he voluntarily lower his demand, before he is legally obligated to do so.

In 2005 and 2006, a plan was under discussion for Alrosa to be the state platform to acquire both Prokhorov’s and Potanin’s stakes in Norilsk Nickel. Internal turmoil at Alrosa, problems with the federal takeover of its shareholding, and Kudrin’s weakness left this idea in limbo, until the new Chief Executive Sergei Vybornov reopened talks with Prokhorov. Potanin, however, has been stocking ammunition to support a state attack on Prokhorov, if the order is given.

According to a recent statement from Norilsk Nickel, Prokhorov currently holds 28.2% in Norilsk, while Potanin has a 25.3% stake. These numbers appear to count an indirect shared stake of 8% the two hold in Norilsk Nickel through a vehicle called KM-Invest.

Before the year started, when the two men began negotiating their asset divorce, each held 22.3% directly — Potanin through his holding, Interros; Prokhorov through his holding called Onexim. But as their disagreement over price deepened, Prokhorov bought additional shares in the market to reach the veto stake of 25% plus one share.

Onexim is a name with unfortunate associations; it was the name of the defunct bank, which Potanin and Prokhorov established in the 1990s, and which defaulted and ceased trading in the August 1998 financial collapse.

Potanin has confirmed through Interros this week that he has made an offer to buy Prokhorov’s shares in Norilsk Nickel, but he hasn’t disclosed the terms, except to say that they reflect “a fair market price and regulatory approvals obtained by both parties.” The second phrase is an interesting kicker; it may be a warning to Prokhorov not to count his Kremlin chickens too confidently.

The Prokhorov-Onexim proposal that is now public indicates a demand for a premium of 12% to 17% over the pre-offer market price. It is almost 10% over most Moscow brokers’ projections of Norilsk Nickel’s target price. In cutting the share price to $278.50 on Thursday, the Russian market is calculating Prokhorov should accept a discount of 16%.

The FT reports that Prokhorov and Potanin reached some form of agreement on October 1. That reportedly provides for the sale of the 25%+1 share. If that isn’t consummated, Prokhorov told the FT “the remaining 8 per cent the pair jointly hold in Norilsk via their KM-Invest fund will be put up for open auction in February.”

Market estimates suggest that for Potanin to take Prokhorov out, he would need to raise between $5 and $10 billion in outside financing. Alfa-Bank reports that “this level of financing will be difficult to raise in the aftermath of the recent liquidity crisis. Therefore, we believe that [Potanin] will form a consortium of both foreign and domestic state-owned banks to help finance the deal.”

Without placing advertisements in the London press, it is obvious that Potanin is negotiating with the Kremlin to underwrite such a deal.

The terms of Prokhorov’s offer – cash only; with a very brief period for completion before Prokhorov usually starts his Christmas vacation in the French Alps – suggests that Prokhorov’s side is trying to speed up the process for Potanin to mobilize his government and Kremlin allies to complete the separation of all their assets, of which Norilsk Nickel is just one part. Extracting such decisions in the current atmosphere is not easy for anyone – not Potanin, Prokhorov nor Putin.

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