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Rusal eyes using 'shoot out' clause to end Norilsk Nickel shareholder standoff

United Co. Rusal Plc is preparing to trigger a "shoot out" scenario to end a shareholder conflict over control of Russian metals and mining giant PJSC Norilsk Nickel Co., the company said Feb. 23.

A "shoot out" is a forced auction requiring the losing bidder to sell out to the winner.

Rusal's billionaire owner, Oleg Deripaska, who holds a 28% stake in Norilsk Nickel, sought an injunction in a London court Feb. 16 to stop Roman Abramovich's Crispian Investment Ltd. from selling his minority share in the company to rival Vladimir Potanin's Whiteleave Holdings Ltd., triggering a stalemate. The sale would tip the balance of power in Potanin's favor, as he holds a 30% stake in the company.

In a decisive move to break the deadlock, Rusal proposed to activate a "shoot out" protocol, by which either party can buy out the other's stake "at a price not less than the six-month weighted average price of the shares of Norilsk Nickel." Rusal set a maximum purchase price of US$320 per share. The company will seek shareholder approval at an extraordinary meeting to activate the clause, which would give the board approval for a year to proceed in case either party invokes the clause.

Based on that assumption, Rusal estimated that Potanin's stake of about 48.1 million shares is worth approximately US$15.39 billion, while the company estimates that Deripaska's 28% stake is worth at least US$9.72 billion.

According to the terms of the shareholder agreement, the lowest bidder would be forced to sell their share in the company to the other. Likewise, if one of the parties refuses to purchase or sell shares in Norilsk Nickel, they will be in breach of the shareholder agreement and obliged to sell a 1.875% stake in Norilsk for US$1.

Rusal said it could finance the possible acquisition of Potanin's shares with bank debt, equity financing or fundraising platforms along with internal resources.

If it sells the US$9.72 billion stake in Norilsk, the company plans to use US$5.9 billion to repay loans, US$250 million for additional CapEx and the remaining for a special dividend payout as well as working capital.

The conditions of the "shoot out" were set down in a 2012 agreement when a similar shareholder dispute between Deripaska and Potanin had to be resolved through intervention from the Russian government. Abramovich's Crispian Investment Ltd. was brought in as a minority shareholder to keep the peace between the two rival tycoons. However, the agreement expired at the end of 2017, prompting Abramovich to offer up his stake for sale and once again triggering the shareholder dispute.

This time, the Russian government resolved not to get involved. Government spokesperson Dmitry Peskov said the Kremlin does not play any role in shareholder relations. Further court proceedings have been set for the week commencing March 5.