On September 28, the NorNickel press-service reported that three NorNickel subsidiaries, Norilsk Plant, Kola Mining and Metallurgical Company and OGK-3, had adopted a decision to allocate available funds to the acquisition of their parent company's shares by placing funds into trust management.
The companies will purchase 16.5 million NorNickel shares, which equals 8.7% of its charter capital, for USD 1.7 billion, or USD 103 per share. In our opinion, this price is extremely low, and the companies are not likely to consolidate a large package at this price. In line with our estimates, this volume of investments will be enough to consolidate not more than 5-6%.
We believe that NorNickel subsidiaries' decision to acquire their parent company's shares is generally positive for NorNickel minority shareholders, since it may lend considerable support to the nickel giant's stock valuations. We also note that the reduction of the market free-float will also be positive for minority shareholders, since they will be able to present a large number of shares within the buyback process with a 70% premium to the market. In line with our estimates, about 10-11% of minority shareholders' shares will be purchased.
The decision to place available funds without reconciliation with minority shareholders is negative from the point of view of NorNickel corporate governance. In our opinion, the acquisition of NorNickel shares by its subsidiary companies is part of a struggle for control over the mining and metallurgical company, and Vladimir Potanin's businesses are at an advantage in this struggle. In line with our estimates, the fair value of MMC Norilsk Nickel is USD 216 per share with a 47% upside potential.
0.569
0.073
