No Yukos – Sibneft Merger?

The other day, Russia' stock market has had a sigh of relief. The first positive rumors concerning the Yukos case have come to light. It is allegedly rumored that arrests of Yukos shareholders and the company' head Mikhail Khodorkovsky do not mean beginning of political repressions at all. The arrests are just redistribution of assets employing state machinery forces. This rumor gave rise to shares of Russian companies. However, they have dropped on November 28 again.

Experts guessed the details of the machination for the first time when the Basmanny Court of Moscow arrested the share of MFO Menatep in Yukos. It seemed that was done to prevent escaping of Yukos assets abroad. Soon prosecution agents realized that arrest of the shares did not change the situation in fact; that is why some shares owned by foreign shareholders were set free, those were 4.5 per cent that did not change the situation. Then it became clear that the arrest of Yukos shares allowed Sibneft shareholders act free. 

After the first reports of the Yukos and Sibneft management on the intention to merge, Russian mass media said Yukos was going to take Sibneft over. In other words, it seemed that Sibneft did not welcome the merger but could not reject the deal for some unknown reasons. Meanwhile, it turned out that allocation of authorities allowed Mikhail Khodorkovsky to remain in fact the "honorary" president of the company while Yeugeny Shvidler, the assistant of Roman Abramovich in Sibneft managed the company. There was one more suspicious detail about the whole of the case: the negotiations with ExxonMobil were conducted on behalf of Yukos and Sibneft was not involved. Was it actually so?

The subsequent searches in Yukos offices, the detention of Mikhail Khodorkovsky and the arrest of Yukos shares in Menatep management proved that Russia's smartest oilman had made some blunder. As for Yukos, the oil company immediately launched a force majeure management plan according to which foreigners filled the positions of Yukos's Russian top managers. At the same time, the merger process was carried out according to the previously scheduled plan. When investigators of the Prosecutor's Office asked new head of Yukos-Moscow, Steven Theede to present some financial documents of the company, the American gave them without complaints. There was almost no doubt that the oil
company would be examined even closer once again.

Let us have a look how the situation developed. In spite of the regular attacks of Accounts Chamber Chairman Sergey Stepashin at Sibneft, a high-ranking official of the RF Interior Ministry's Committee of Inquiry has made a statement this week. He said that law enforcement structures laid no claims to Chukotka Governor Roman Abramovich because his money was earned honestly. Simultaneously, the
press reported that Yeugeny Shvidler had to conduct pre-sale preparation of YukosSibneft to sell a large share holding to some Russian investor. At that, Russian mass media insist that ex-chief of staff of the RF Presidential Administration Alexander Voloshin had some important reason to quit the post. It was said he would be at head of the merged oil giant. In other words, Alexander Voloshin and Roman Abramovich are dividing the legacy of Mikhail Khodorkovsky. 

Why not if it is actually so? Before Alexander Voloshin came to the Presidential Administration he had dealt with privatization of Russian oil companies. In 1995-1997, Alexander Voloshin was the president of the joint-stock company Federal Stock Corporation that acted as a general agent of the Russian Federal Property Fund and organized special auctions selling assets of state-run enterprises. He arranged privatization of large shares of Sidanko, Onako, TNK, Gazprom, RAO UES
of Russia, Sibneft and othercompanies to the sum total of around $9 trillion. So, Alexander Voloshin is not less experienced at privatization than Anatoly Chubais.

Judging by the fact that US's ChevronTexaco, one of the prospective clients to purchase 50 per cent of YukosSibneft shares, is shifting its investment concerns to the former Soviet republic of Kazakhstan the strategy of Mikhail Khodorkovsky is no longer essential. This means that the merged company will be still controlled by the Russian side no matter how many American top-managers work in it.

Yukos shareholder Leonid Nevzlin, now staying abroad, is skeptical about the plans of Roman Abramovich and Alexander Voloshin. He says that anyone wishing to be at head of the company should first fill some post in it and win the sympathy of its board of directors. Indeed, this scheme is perfectly correct for some other country, while Russia is the country where the most impossible things are feasible.

Analysts explain that as soon as the General Office of Public Prosecutor arrested 39.6 per cent of Menatep shares in Yukos, the holders of the shares still retained the right to vote at the meeting and to receive considerable dividends. As for Sibneft shareholders, they are not restrained at all. They have already received $3 billion from Yukos as the profit for 20 per cent of Sibneft shares. They may spend the money on shares of the merged company.

Under the present-day conditions, Yukos cannot swallow up the giant. Menatep's share in the company makes up 4.5 per cent; another large share holding of 17.65 per cent is currently in free circulation. The holder of 26.1 per cent of shares of the new company is Millhouse Capital, the company representing interests of Roman Abramovich, is the company's biggest shareholder today.

An extraordinary stockholders' meeting of YukosSibneft that has been scheduled long ago started November 28. The regional press reported alarming news early on November 28 saying that the heads of branch establishments of the merged company in Russia's regions demand that Mikhail Khodorkovsky must be back to the company. Director General of Sibneft - Tyumennefteprodukt Vladimir Rid said at a press conference in the city of Tyumen that he wanted Mikhail Khodorkovsky be back to the company. Vladimir Rid is sure that Khodorkovsky's contribution to
Yukos is invaluable and must be respected.

To all appearances, the team of Mikhail Khodorkovsky and those who sympathize with him in Sibneft have realized that they cannot control the situation without their leader. Recent information has produced a sensation: the Yukos - Sibneft merger process has been stopped upon mutual agreement of the shareholders.

Experts cannot suppose what this means. Majority of them think that the merger suspension means that the companies are breaking up. Let us wait and see what Russia Federation Prosecutor General Vladimir Ustinov and President Vladimir Putin will say concerning the situation. It is not ruled out that they look upon the situation at a different angle.

The suspension of Yukos and Sibneft merger has resulted in collapse of the Russian market. As of 1:30 p.m. November 28, the Yukos shares dropped by 5 per cent and made up $11.4 in RTS. LUKOIL shares dropped by 0.92 per cent to $21.5; the quotations of RAO UES of Russia dropped by 1.14 per cent to $0.26 and of Surgutneftegas - dropped by 1.13 per cent to $0.525. The RTS index dropped by 2.12 per cent by the same time November 28 as compared with the previous closing and made up 528.68 points. If the shares are falling in price it means someone buys them up.

Dmitry Slobodanuk

Author`s name Andrey Mikhailov