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26 Aug, 2008 02:09

Norilsk share buy back exposes tensions between key shareholders

Norilsk Nickel will buy back $2 billion worth of its shares from the markets. The announcement has sparked another crisis between the company's main shareholders – Interros and Rusal.

The world's number one nickel miner, Norilsk Nickel is to buy back over 4% of its floated shares for $2 billion. The move is intended to support the falling capitalization of the company, which has dropped from 60 to 38 billion dollars since May. But according to Vladimir Gukov, Analyst at Lehman Brothers Norilsk is also sending a message to the market.

“The company views its current share price as heavily undervalued.  And it has set such a high buy out price at $254 to make such a buyout price attractive to Norilsk Nickel minorities on the one hand, but also on the other hand trying to give a signal to the market that they believe that the share price is cheap.”

Russia's aluminium giant Rusal  – owner of 25% of the firm's shares – was against the share buy-back and were counting on earning significant dividends.

Analysts say Rusal wants to maintain its position in the company, but it's becoming more and more difficult.  Tim McCutcheon, Partner at DBM Capital, says it will lose out to some extent one way or the other.  

“Rusal doesn’t want to reduce their shareholding, so they don’t want to participate in the buyback, which basically means you’re selling your shares.  They like to get cash as well, and here they have a situation where they don’t get to participate, so they don’t get any cash out of it, and it looks like because they aren’t participating their share in the company, if minority shareholders do participate, will actually go down.”

The buy-back – the third in the company's history  – is the latest move in a  6 month long struggle over the future of the company, between Rusal and Interros – the metal giant's major shareholders.  Rusal wants a new board of directors and more cooperation from Interros on strategic and management questions.  But Vladimir Potanin, the Interros owner, is likely to keep trying to maintain his grip over the firm's future.