The Renova group sold its 7.5% stake in Tolyatti Azot to the Uralchem group, Interfax announced. Over the past year, Renova has considered various options for its participation in Tolyatti Azot capital, from increasing its holding in the company to withdrawing from the capital. The group has held the necessary talks with the company's prime owner and other market participants. According to its representatives, Renova bought the share package as a portfolio investment in 2005 in order to make capital gains on the shares and receive dividends.
After taking a share in Tolyatti Azot, Renova disagreed with its management over corporate issues, including the information disclosure policy and a fair dividend policy.
The partners settled all their discords towards the end of 2007. In particular, Renova received all of the dividends due for 2004-2006, which had been delayed. The group also received dividends for 2007, after which it decided to sell its shares in the company and withdraw its capital.
This is a positive event for Tolyatti Azot, as it may spell an end to the three-year corporate conflict around the company, due to which the company has long remained undervalued. The conflict is likely to be resolved soon, which will undoubtedly enhance the company's investor appeal.
A change in company ownership in favor of Uralchem is not ruled out in the long-term. Tolyatti Azot is one of the few unsold assets on the Russian mineral fertilizer market to date (according to unofficial information, over 70% in Tolyatti Azot belongs to businessman V. Makhlai, while D. Mazepin continues to build his Uralchem holding company, buying more assets). In early June, 2008, Uralchem said it had bought 71.72% of voting stock in Voskresensk Mineral Fertilizers (VMF, Moscow region), rated among Russia's largest phosphorous fertilizer producers. The likelihood that the purchase went ahead was confirmed by the fact that at the AGM of the Bereziniki-based Azot company, held on May 30, shareholders approved drawing RUB 109 billion (around USD 4.5 billion) in loans from various banks (Uralchem owns 95.53% in Azot).
Information about an imminent deal between Renova and Uralchem probably began to leak to the market several months ago, given that Tolyatti Azot shares have gained 190% in value since the start of April. Tolyatti Azot shares closed 11% up on July 2.
Our target price for Tolyatti Azot shares (RTS: tlaz) is USD 34.9 per share, which implies a limited upside potential and corresponds to a HOLD recommendation.
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