Norilsk Nickel starts on share buyback as Rusal rejects buyout

RIA Novosti / Vitaliy Belousov
Russian metals producer, Norilsk Nickel, has unveiled a share buyback programme in the wake of Rusal’s rejection of Norilsk Nickel’s proposal to buyout Rusal’s 25% stake in the company.

Rusal rejected a proposal made on December 16 by Norilsk to buy back its 25% stake for $12 billion, saying in a statement that it had always considered the stake in Norilsk to be strategic and does not intend to sell.

Shortly afterward Norilsk announced the start of what it calls a shareholder value enhancement programme which will see the company allocate up to $4.5 billion over the next year on buying its shares and ADR’s, either on the open market or through tender, noting that the size and timing of any tender offers or open market purchases would depend on market conditions

Norilsk Nickel said the rationale for the buyback included what it saw as undervalued Norilsk Nickel shares, significant cash on its balance sheet, capacity to generate strong cash flows, and the optimization of its capital structure. Norilsk added that the move would deliver significant value and return cash to its shareholders over the medium to long term, in conjunction with its disposal of non core assets, according to General Director,Vladimir Strzhalkovsky.

“Norilsk Nickel is determined to deliver value to its shareholders. We believe that Norilsk Nickel offers a great potential to its investors.”

The announcement is expected to see Norilsk management, and shareholders including Interros, controlled by Vladimir Potanin, and Trafigura, to whom an 8% stake was sold two weeks ago, take control of more than 50% of the share capital.

The developments come in the wake of a protracted shareholder dispute between Rusal on one side, and Norilsk Management and Interros on the other, over board representation and corporate strategy. The dispute saw claims of voting fraud at the Norilsk Annual General Meeting in June, which saw Rusal call for an Extraordinary general Meeting in October where its push for greater board representation was defeated.

Rusal was scathing about the share buyback plans announced by Norilsk, claiming that the move represented a takeover of Norilsk Nickel by Norilsk management and Interros.

“We regard Norilsk Nickel's statement on the steps that MMC aims to take in response to Rusal's refusal of the offer as yet another manifestation of gross corporate blackmail, having nothing to do with the proper principles of corporate governance that a public company should have.”

In addition, everything that has been recently openly voiced by the management of MMC, giving it for alleged efforts to increase the capitalization of the company, was described by RUSAL immediately after the annual general shareholders' meeting as the most likely scenario for the behavior of the management of Norilsk Nickel and Interros. From the outset, acting together, they have been aiming to achieve complete and absolute control over the company.”

Rusal added that it saw the attempted buyout of Rusal from the Norilsk Nickel register as nothing more than an attempt to remove an ‘awkward shareholder’ which was looking to promote reform within Norilsk Nickel.It also said it would again look to push for changes in board representation at the March Board of Directors Meeting, adding that it had failed in October only because Norilsk treasury shares, from which the stake has since been sold to Trafigura, and with Rusal claiming the sale was ‘most likely at a discount’ had voted against it, adding that the majority of minority shareholders had supported it.