Daily analyst comments

On August 5 the Onexim group said in an official press release that it had completed consolidating a 16.6% share package in Norilsk Nickel with a view to selling it to Potanin's units under an irrevocable offer. Under the terms of the offer, Potanin's business will buy the share package for USD 10 billion, paying USD 6.5 bn in cash and handing over a 35.2% stake in Polyus Gold for the remaining USD 3.5 bn. The price of the deal values one share in Norilsk Nickel at USD 315 and one share in Polyus Gold at USD 52. Official representatives of the parties involved would not elaborate on the deal.

If the deal goes ahead as planned, its participants will incur the obligation to make a voluntary buyout offer. Potanin's units will be obliged to make a buyout offer to Norilsk Nickel minority shareholders at USD 315 per share, an upside of 48% to the current stock valuations. Given the current market conditions, there will be many wishing to take advantage of the buyout offer, which may require up to USD 33 bn, a sum that may prove difficult to secure in a short time period.

In view of this, the re-sale of the 16.6% share package to Metalloinvest by Potanin's units would be the most likely scenario. A source close to Usmanov's units stated last spring that Metalloinvest was prepared to buy 15% to 16% in Norilsk Nickel from Onexim for USD 10 bn. If this scenario is realized, Potanin's units will not face the obligation to make a buyout offer to Norilsk Nickel minority shareholders.

Onexim, for its part, will be obliged to make a buyout offer to Polyus Gold minority shareholders, given that change of the owner of a stake of above 30% entails making a voluntary buyout offer by Russian law. The buyout price cannot be lower than the price at which the share package was bought and the weighted average price for the six months preceding the buyout offer.

The weighted average price of Polyus Gold shares on Russian stock exchanges now stands at USD 59 for the past six months. As the offer will be made no sooner than the deal is completed (the press release from Onexim says the swap is to be completed by November 15, 2008), the weighted average price may change. However, the buyout offer price cannot be lower than USD 52 per share, up 20% over the current quotations for the shares.

It is not quite clear how Onexim has managed to amass 16.6% in Norilsk Nickel. The share package has most likely been bought from Rusal or major minority shareholders.

If the deal goes ahead, and we believe that the likelihood of this is high, it will undoubtedly be beneficial to Polyus Gold minority shareholders, as the buyout offer price will offer a premium of more than 20% to the current stock valuations. For Norilsk Nickel shareholders, the results of the deal would be neutral, as it is highly unlikely that a buyout offer would be made to these shareholders. We do not currently have an official target price and recommendation on Norilsk Nickel and Polyus Gold shares.