Friday, December 14, 2007, an extraordinary meeting of the shareholders of Norilsk Nickel (RTS: GMKN) was held in Moscow. The meeting was to make a decision on the company's non-core power assets. However, the proposed spin-off of non-core power assets did not garner enough votes from Norilsk Nickel's shareholders.
Although this motion was not passed, the company still believes that this project is the most promising in terms of value accretion. Based on the results of the vote, Norilsk Nickel's management in the near future will propose alternative scenarios to the Board of Directors, including the sale of these assets. However, whatever decision is proposed to Norilsk Nickel's BoD, it is unlikely to be accepted until December 21. On this date, it will be clear who, either Mr. Potanin or Mr. Deripaska, has obtained the stake sold by Mr. Prokhorov, who had a 25% interest in Norilsk Nickel.
The investor that has purchased Mr. Prokhorov's stake will decide the future of the power assets. If Mr. Potanin purchased the shares, we believe that this is unlikely to happen and we have repeatedly explained why, then it is 100% certain that the assets will be spun off. If Deripaska has purchased the assets, then there is a strong likelihood that the company will retain some of these assets, because Rusal might need some of the assets of EnergoPolyus to provide power to its subsidiaries. Therefore, Rusal might be the one to pick them up.
The result of shareholders' voting on the power assets is not negative news. We believe that if Mr. Deripaska has purchased the blocking stake, it is possible that he will start negotiations with Mr. Potanin, who is the other major shareholder of Norilsk Nickel, to consolidate the companies. The synergy effect of this consolidation might be far stronger than the increase in the value after the spin off of power assets.
Presently our fair value for Norilsk Nickel is $309, which implies 21% upside. Our recommendation for the shares of this company is Buy.
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