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By John Helmer in Moscow

The maxim that one should see, hear, and speak no evil appears to have started out in ancient China. Confucius apparently added the obvious fourth – do no evil. It was natural that the maxim should cross the water to Japan, but far from clear why three monkeys with their hands covering the affected body parts (the fourth has his hand over his crotch) should have appeared to bear the message so famously. It’s certain, however, that what everyone recognizes today in the wise monkeys was first spotted over the door of a 17th century shrine in Nikko.

The Russian combination of Mikhail Prokhorov, Oleg Deripaska, Vladimir Potanin, with Victor Vekselberg – all clutching parts of United Company Rusal and Norilsk Nickel — has been challenged recently to substantiate the wisdom of their combination. When Prokhorov issued an announcement this week of his intention to sell Potanin Norilsk Nickel shares he appears not to own, speculation gripped the market that one of the wise monkeys had taken leave of his senses altogether.

After reading this announcement on Tuesday, the market cut the value of Norilsk Nickel’s share (GMKN:RU) by 4.5% to price it at $206.50. Prokhorov’s offer proposed that Potanin should pay $315 – a 53% premium. The market also cut the value of Polyus Gold (PLZL:RU) – which Potanin and Prokhorov share – by 2.3% on the day to finish at $44.70. By the middle of Wednesday, the share prices of both companies were still falling on the Moscow stock exchange – down another 2.7% for Norilsk Nickel; and down 10% for Polyus.

This is Prokhorov’s announcement, which his Moscow holding Onexim confirmed for Mineweb today:

“ONEXIM to complete consolidation of 16% stake in MMC Norilsk Nickel to be sold to Vladimir Potanin

ONEXIM Group announces that it is about to complete the consolidation of the 16.66% equity stake in MMC Norilsk Nickel that it intends to sell to the companies controlled by Mr Vladimir Potanin under an offer made by him to Mr Mikhail Prokhorov. In accordance with the terms of irrevocable offer, Mr Vladimir Potanin acting through its controlled interests would purchase the said equity stake for the total amount of US$10 billion, or US$315 per one share. The payment should be effected in the form of cash (US$6.5 billion) and a 35.2% equity stake in OAO “Polyus Gold” presently owned by Mr Potanin’s controlled interests (US$3.5 billion). The transaction should be closed by 15 November 2008.”

Onexim was asked to say if Prokhorov and his associated companies currently own the Norilsk Nickel shares being offered for sale. The group was also asked to clarify what is meant by the reference to the “irrevocable offer” which Potanin had allegedly made earlier to Prokhorov. The Onexim response was that “all that the company wanted to announce, it did in the press release. That is all we wish to say.”

A well-known analyst for the Moscow branch of an international bank told Mineweb his bank has analyzed stock volumes and price movements, and come to the conclusion that Prokhorov may have picked up 1% or 2% — possibly as much as 5% — of the free floating Norilsk Nickel stock, but certainly not the bloc of 16.66% that appears in this offer.

Most market sources and investment bankers familiar with Norilsk Nickel concur – Prokhorov is proposing to sell what, for the time being, he doesn’t have. Rob Edwards, for Renaissance Capital, reported to the market that “it is now clear that this announcement stems from an earlier offer that Interros had made to Onexim to buy its shares in Norilsk for $32/share, at a time when Onexim was in the process of selling a 25% block to UC Rusal for around $25/share. It would seem that Onexim still believes this offer is still open, although Onexim clearly does not have 16% of Norilsk to sell.”

Several market sources believe that at the time in the spring, when Potanin was trying to dissuade Prokhorov from selling his 25% stake in Norilsk Nickel to Deripaska, an agreement was struck. However, sources close to the Deripaska camp have confirmed that the deal Deripaska had extracted from Prokhorov the previous year obliged Prokhorov to grant exclusivity, and not to sign another sale deal for his shares with a rival. Thus, even if Prokhorov now refers to an “irrevocable” undertaking he and Potanin had come to, this cannot have been a legally binding contract at all. In the event, Prokhorov ignored Potanin’s bid, and sold to Deripaska.

Is Prokhorov now trying to sell Deripaska’s share of the Rusal stake in Norilsk Nickel back to Potanin? Mineweb has already reported that, at a recent meeting with Igor Sechin, the deputy prime minister in charge of Russian industry, Deripaska and Potanin understood that Rusal would not be permitted by the government to increase its stake in Norilsk Nickel, let alone go for a takeover, which Rusal had publicly signalled it wanted last December.

Deripaska’s 56.8% stake in Rusal translates into a 14.2% share of Rusal’s Norilsk Nickel holding. Add Vekselberg’s half-share of the SUAL stake in Rusal of 18.9% (Len Blavatnik apparently controls the other half), makes 2.4%, for a combined shareholding of 16.6%. Do the wise monkeys believe in coincidence?

If not, it can be surmised that the 16.66% stake Prokhorov is offering Potanin may belong to Deripaska and Vekselberg, who were convinced by Sechin last week to sell out, and get the best price they can before the nickel fundamentals drive Norilsk Nickel down any further.

Alternatively, Deripaska may be alone in selling, and the difference between his 14.8% and Prokhorov’s offer of 16.66% may be a 2% bloc which Onexim may have acquired in recent weeks. A banker who has been closely monitoring all sides of the Rusal attempt at taking over Norilsk Nickel told Mineweb that Onexim may have a deal with Deripaska — if Potanin accepts the offer, then Deripaska will provide the shares. For the latter, the source believes, “it’s a nice business – bought at about $270/share and sold at $315.” The calculation of the spread between Deripaska’s buying price and the proposed selling price is based on the agreement between Prokhorov and Deripaska in the spring to value the unlisted Rusal at $45 billion.

Deripaska’s pressing problem, according to a Moscow newspaper, is that unless he settles Mikhail Chernoy’s (Michael Cherney) High Court claim in London, he can neither list Rusal shares on the London Stock Exchange, nor add to Rusal’s and his own borrowings. You don’t need to be a wise monkey to calculate that the cost of settling with Chernoy is a fraction of what Deripaska is legally obliged to pay Vekselberg, Blavatnik, Prokhorov and Glencore (the last of the Rusal stakeholders, with 10.3%), if he cannot achieve a public share listing within a year.

“As [RusAl] doesn’t have enough money now, and the IPO has been suspended by the [London] court proceedings against Deripaska, they may [consider that] becoming a Norilsk portfolio investor is the best choice,” a Moscow newspaper reported Wednesday from a source identified as “a source close to an investor in Norilsk”. If Prokhorov’s sale goes through, Rusal would retain a stake of just 8% in Norilsk Nickel, worth one seat on the board.

Chernoy has not commented on the case against Deripaska or the value of his claim since he won a sweeping ruling from the High Court, allowing a trial to proceed. The power of the claim – between $6 billion and $10 billion, depending on how the High Court rules on the evidence at the trial — has been gaining credibility among the investment banks lending to Rusal , and is now appearing in the Moscow media. As Mineweb has reported, Deripaska says he is appealing. In the past, Deripaska or Rusal have appealed against adverse rulings in the UK and Swiss courts, only to settle when overruled. Rusal has not commented on the Onexim proposal.

Interros, the Potanin holding, is also refusing to comment on the Onexim proposal, because no offer has been delivered so far – except through the press.

Uralsib analyst Michael Kavanagh warns that if Prokhorov, Deripaska and Vekselberg are desperate enough, the price for their exit may continue to fall. “We do not understand why Potanin would want to buy Norilsk Nickel shares at a 45% premium to the market or how Prokhorov obtained Norilsk’s shares to sell given that he sold the majority of his interest in Norilsk to Rusal in May 2008.”

The market has also interpreted Prokhorov’s reference to Potanin’s 35.2% stake in Polyus Gold as a sting in the tail. This implies that the Interros group controls a larger stake in the goldminer than Russian market regulations allow, without a mandatory offer to minorities. Market sources believe the calculation includes the Interros stake in Polyus Gold of less than 30%, plus the KM Invest stake, which Prokhorov and Potanin shared, until they agreed to divide it in Potanin’s favour. Interros is not commenting on the calculations. However, a market source believes there can be no substance to Prokhorov’s threat to haul Potanin before the Russian regulator, the Federal Service for Financial Markets. That’s because Prokhorov, Onexim and their associated companies are suspected of holding an even larger, and undisclosed stake of around 40%.

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