Two major Russian oil companies put merger on hold

Moscow (AP) -- In a fresh shock to Russia's financial markets, oil major Sibneft said Friday that its merger with the Yukos oil giant -- a deal that would have created the world's fourth-largest oil producer -- is on hold. The plight of Russian oil company Yukos took another turn for the worse yesterday when Sibneft, the firm controlled by the Chelsea football club boss Roman Abramovich, suddenly announced it was suspending their merger, reported the Guardian. The motive for Sibneft's announcement so late in the merger process remained unclear last night. Simon Kukes, the new chief executive of Yukos, told the Interfax news agency that the deal "is still on. It has not been suspended," reports The New York Times.

Yukos share prices plunged 10 percent and Sibneft shares fell 6 percent within an hour of the announcement, and other companies' share prices also were falling, Echo of Moscow radio reported. The two companies had announced their merger in April, when Yukos said it would acquire Sibneft in a friendly takeover for $3 billion in cash and a share swap. Sibneft's core shareholders have already paid cash and swapped their shares to become owners of 26.01 percent of Yukos. The deal was finalized in late September. According to the Guardian, The merger was initially completed in late September, and was the largest deal in Russian corporate history, with an estimated combined market value of $35bn. YukosSibneft would have been the world's fourth largest oil company with a daily output of 2.06m barrels. This is the second time a merger between the two firms has faltered at the last post, their previous merger attempt in 1998 being thwarted by the financial crisis. The suspension of the deal strikes another unexpected blow to Yukos, whose former chief executive, Mikhail Khodorkovsky, was arrested on Oct. 25 on charges of tax evasion and fraud. His arrest is widely viewed as a political attack by Russian President Vladimir Putin for funding independent parties and for voicing political ambitions, states The New York Times. Khodorkovsky had hinted he might challenge Mr. Putin and run for president in 2004. Sibneft shareholders told us that they have technical difficulties and asked not to change the board make-up at today's meeting," Leonid Nevzlin, a key Yukos shareholder, told the Interfax news agency from Jerusalem, where he fled earlier this year, fearing prosecution in Russia. "We are not talking about canceling the deal," he said, according to Interfax. "Sibneft is still Yukos's subsidiary. I do not know in detail what kind of technical difficulties Sibneft shareholders have."

Sources: The Guardian, The New York Times, AP

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