Russia tycoon Vladimir Potanin agrees to Nornickel-Rusal merger talks

Industry:    2022-07-06

Billionaire Vladimir Potanin, the biggest investor in MMC Norilsk Nickel PJSC, said he’s ready to discuss merging the mining giant with United Co Rusal International PJSC as sanctions against Russia weigh on both companies.

Potanin has headed Nornickel since striking a 2012 shareholder accord with aluminium producer Rusal, the company’s second-largest investor. A merger would create a “national champion,” the tycoon said in an interview with Russia’s RBC TV channel on Tuesday. Rusal shares jumped 11% in Hong Kong.

“We received the proposal from the management of Rusal to discuss the merger with Norilsk Nickel as an alternative to extending the shareholder agreement,” Potanin said. “I sent a letter in which I confirmed our agreement to start the process of discussing a merger with Rusal.”

Potanin, Russia’s richest man, controls about 35% of Nornickel, a key producer of nickel and copper and the world’s biggest miner of palladium. Apart from some Canadian restrictions in April, the tycoon largely avoided western sanctions targeting other members of the Russian elite until the UK imposed penalties on June 29.

The notion of merging the two Russian metals giants dates back to 2008, after billionaire Oleg Deripaska’s Rusal purchased a stake in Nornickel. Potanin previously didn’t support the idea. “There is no synergy between two companies,” he said in a 2017 interview with Vedomosti newspaper.

Despite Potanin’s latest comments, the merger still seems unlikely, according to Kirill Chuyko, an analyst at BCS Global Markets.

“The national champion idea may be seen as an additional guarantee against the sanctions, but still it is not possible to be fully safeguarded this way,” he said. “The parties have long and extremely difficult history of relations, while business wise the merger still makes no sense.”

The original shareholder agreement not only defined Nornickel’s dividend payouts, but was supposed to end feuding between Potanin and Rusal’s founder Deripaska. Still tensions remain between Potanin and Rusal, even after Deripaska was forced to cut down his majority stake in the aluminum producer. The agreement expires in December.

Reduced Dividends

Potanin said Tuesday that 2022 and 2023 dividends are likely to be less than usual. The shareholder accord with Rusal previously guaranteed high payouts, with Nornickel’s board approving $2.4 billion in final dividends for 2021, even as sanctions on Russia for its invasion of Ukraine upend the market. Rusal owns just over 26% in the miner.

Potanin said on Tuesday that Nornickel is not under sanctions, despite the penalties imposed against him by the UK. The billionaire also indicated that he is not going to step down as Nornickel chief executive officer.

Any merger could also be dependent on the US Treasury’s Office of Foreign Assets Control.

Rusal emerged from sanctions in early 2019 following a deal with OFAC that saw Deripaska cutting his stakes in both the aluminum producer and its parent En+ Group. That deal allows OFAC to nominate trustees overseeing most of the tycoon’s shares, while the board was changed to include a majority of independent directors. The companies also agreed to “unprecedented transparency for Treasury into their operations,” which might cover large deals too.

Rusal’s press service declined to comment.

About 20% of the world’s nickel comes from Russia, with nearly all of that from Potanin’s Nornickel. The company also produces about 40% of the world’s palladium, used in anti-pollution devices in gasoline cars.

Nornickel traded down 4% as of 2:26 p.m. in Moscow.

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