Tax bill puts a stake through the heart of YUKOS, Sibneft merger

In the wake of tax authorities' estimates of YUKOS' back-tax bill at more than USD 5 billion, chances of the merger of YUKOS and Sibneft have been reduced virtually to nil, the Aton investment company stated today in its daily newsletter.

'We assume that the new charges of failure to pay taxes are meant, first of all, to force the principal owners of YUKOS to part with their stock and to give up their rights to run YukosSibneft. The current estimate of unpaid taxes at USD 5.2 billion is the equivalent of 20% of the current worth of YukosSibneft shares; if the merger fails to happen (a 99% certainty), that sum is the equivalent of 26% of YUKOS' current share value without Sibneft,' Aton noted. In the analysts' view, 'the government could theoretically demand a blocking share of company stock as compensation for unpaid taxes. Moreover, we do not exclude the possibility of further tax penalties in that the investigation is not yet complete,' Aton says.

The analysts further state: 'The likelihood that the deal will be dropped are much greater than the chance of a successful outcome. Even if YUKOS' principal shareholders agreed to give Sibneft control of the new company or gave it the remaining shares of the new company, they could hardly forget that the deal had been forced on them by the owners of Sibneft, who, exploiting the situation that has developed, would have negotiated from a position of strength. It is, therefore, hard to imagine the two groups of stockholders working together to raise the value of YukosSibneft stock.

'We believe that if YUKOS' stockholders are not in an absolutely hopeless situation (i.e., having to turn over the management to Sibneft before the elections or lose the company entirely), they would, most likely, themselves insist on canceling the deal and proceeding on their own,' Aton notes. In the analysts' view: 'It is not clear how the deal can be saved if these estimates of back-tax obligations are confirmed-one cannot imagine the Sibneft shareholders agreeing to pay 26% of the merged company's USD 5.2 billion tax bill.'