They Just Can't Get Along Anymore
// Vladimir Potanin and Mikhail Prokhorov to Divide Their Joint Holdings
The co-owners of the company Interros, Vladimir Potanin and Mikhail Prokhorov, announced yesterday that they are dividing their joint business holdings, which together are worth around $30 billion. Mr. Prokhorov will receive all of the group's energy assets, and he is selling his stake in Norilsk Nickel to Mr. Potanin for an undisclosed sum. The partners, who are two of Russia's top ten richest men, will divide the rest of the group's assets up the middle. Whether the proceedings will open the door for state or foreign investment in Norilsk Nickel remains to be seen.
Interros published a statement for the media yesterday that read, "Vladimir Potanin and Mikhail Prokhorov intend to restructure their business in 2007…Interros will remain in the hands of Mr. Potanin, and Mikhail Prokhorov will no longer be a shareholder in the company." Mr. Potanin will buy out Mr. Prokhorov's shares in Norilsk Nickel, and Mr. Prokhorov's new company will get all of the energy and hydroelectric energy assets, including those in the US. All of the company's shares in the Polyus gold-mining company; RosBank, in which the bank Societe Generale has an option to purchase a 60% stake before the end of the year; the companies Prof-Media and Power Machines; and the real estate group Open Investments will be divided equally between the two partners.
According to sources close to the company, the partners have been discussing a possible reconstruction for the past year, and it was decided in December 2006 that Mikhail Prokhorov would leave Norilsk Nickel. The decision was originally supposed to be made public in April, but the scandal surrounding Mr. Prokhorov's recent arrest in France "served as a catalyst for the process," and in any case it would have been "impossible to hide and difficult to explain" the corporate preparations for the split for much longer. The split has not been discussed with the Kremlin directly, but the partners say they do not expect any difficult questions from the administration, which has known of their intentions for some time.
Spokespersons for Norilsk Nickel told Kommersant that Mikhail Prokhorov will remain in the post of general director until the end of 2007. He is said to have not yet chosen a name for the new company he is planning to create to hold the energy assets that he will acquire once Interros goes to Mr. Potanin, but sources say that he wants to create "the Russian equivalent of Microsoft." Sources also say that he is intending to pursue investment full-time, primarily in the field of Russian energy, where he hopes to found an innovative energy company "that will change the landscape in the energy sector." Mr. Prokhorov will continue to be an investor in the companies whose assets he will split with Mr. Potanin, meaning that the two former partners will have equal stakes in several "old" projects by the end of 2007. They are also planning several new investment ventures in the spring, but in these projects they will be independent co-investors and shareholders right from the start.
According to Kommersant's sources, the reasons for the "divorce" are fairly mundane: the partners really just want to dispense with the necessity of constantly having to make sure that their different points of view on the evolution of their businesses coincide. The two often clash in Norilsk Nickel, Prof-Media, RosBank (Mr. Prokhorov is said to be skeptical about the future of rapid growth in the Russian banking sector), and various energy assets (Mr. Protanin is not wholly inclined to share his partner's fondness for "overly aggressive" approaches to development). Mr. Prokhorov and Mr. Potanin are also said to be simply tired of spending too much time on non-strategic questions. According to a source, "it will be more comfortable to just be friends."
The market value of Norilsk Nickel, of which Mr. Prokhorov and Mr. Potanin together own a 51% share, is $31.3 billion. Mr. Prokhorov's 25.5% share is thus worth $8.2 billion. By the end of the year, Alfa Bank estimates that the closure of new deals will pump the company's worth up to $40 billion, meaning that Mr. Prokhorov's share will then be worth around $11 billion. Yesterday Norilsk Nickel spokespersons declined to comment on the terms of the Mr. Potanin's buyout of his partner. According to Alfa Bank analyst Vladimir Zhukov, the two founding shareholders of Norilsk Nickel have earned around $2 billion each from dividends and share buybacks since 2003, meaning that the deal between the two will undoubtedly include appropriate compensation for Mr. Prokhorov.
According to MDM Bank analyst Tigran Oganesyan, Norilsk Nickel's current energy assets are worth around $2.7 billion, which goes up to more than $3 billion if the company's 35% share in the American hydroelectric energy company Plug Power is included. Mr. Potanin will thus have to pony up no less than $6 billion in the split. UBS analyst Alexei Morozov asserts, however, that coming up with the remainder will be no problem for Mr. Potanin, thanks to the large share that he holds in Norilsk Nickel. It is also possible that shares in other companies owned by Interros will come into play as well.
In terms of politics, the financial divorce between the two partners may open up a window of opportunity for government or private investors. For example, the state-owned company ALROSA is rumored to have a long-standing interest in Interros, and Kommersant's sources say that ALROSA's leadership approached Messrs. Prokhorov and Potnatnin in 2006 with a proposal to sell a large packet of shares in their company. ALROSA refused to comment.
Now that proposal is likely to be repeated, and Mr. Potanin has possibly already received an offer of government help in the buyout of Mr. Prokhorov and of a big credit from state-owned banks, an offer that could turn into a share for the government in the nickel giant. It is also possible that the split between the partners is a consolidation of shares in advance of a sale of some of Norilsk Nickel's assets to a third party.
Dmitry Butrin, Maria Cherkasova, and Elena Kiseleva
All the Article in Russian as of Feb. 01, 2007
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