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Interros, RusAl Stop Playing Nice Over Norilsk Nickel

Potanin, left, saw his Interros holding gain four seats on Norilsk?€™s board, while Deripaska?€™s RusAl only won three. Denis Grishkin

Norilsk Nickel's two largest shareholders have cast off the final semblances of a state-brokered truce in their battle for control of Russia's largest miner, with Vladimir Potanin's Interros scoring a tactical victory over Oleg Deripaska's United Company RusAl.

RusAl accused Norilsk's management of manipulating the company's treasury shares to dilute its presence on the board of directors.

The actions are "gross violations of corporate governance procedures, the principles of transparency and observance of the interests of all shareholders," RusAl said in a statement late Monday.

The aluminum giant, which owns 25 percent of Norilsk, said it would convene an extraordinary shareholders meeting to re-elect the board, labeling the vote a "result of manipulation of Norilsk Nickel shares belonging to the company."

A RusAl spokeswoman said it was unclear when the meeting would be held.

Interros, which also owns a blocking stake, defended the elections and Norilsk management but said it would not oppose a new vote.

Analysts said the conflict could lift Norilsk's stock price in the short term as the dueling owners bolster their holdings on the open market to gain clout ahead of the vote.

Norilsk shares fell 3.3 percent in Moscow on Tuesday, slightly underperforming the benchmark MICEX Index, which dropped 2.9 percent.

Longtime owner Interros came away with four directors on Monday, while RusAl only got three of its representatives on the board. Company management — led by CEO Vladimir Strzhalkovsky — also won three seats, with the remaining three directors of the 13-member board going to independents.

The results mean that Interros and Norilsk managers hold a majority.

In another surprise twist, former Norilsk chairman Alexander Voloshin — an independent nominated by RusAl to represent its major creditor, VEB — lost his seat.

RusAl skipped the subsequent board meeting in protest, which elected Interros-nominated independent director Vasily Titov as chairman. Titov is first deputy president of VTB, a major creditor of Interros.

Interros "respects the rights of RusAl as a shareholder" and is not opposed to holding the extraordinary shareholders meeting, the company said.

"But that doesn't mean that we share RusAl's position on Norilsk Nickel's management," Interros' press office said, adding that the company was satisfied with the outcome of Monday's meeting.

RusAl said Norilsk had "transferred quasi-treasury shares to offshore companies and voted them against the election of Alexander Voloshin, whose candidacy had been agreed on by RusAl and Interros and supported by the state."

Norilsk's management defended its use of the shares, saying "all the company's shareholders had exercised their rights in an equal manner, proportionally to their participation in the company's stock capital."

RusAl bought 25 percent in Norilsk from Potanin's former business partner, Mikhail Prokhorov, in the spring of 2008 as a prelude to a possible merger of the two mining giants.

Potanin opposed the sale and the proposed merger, preferring instead a tie-up with Alisher Usmanov's Metalloinvest.

The ensuing seven-month shareholder battle was laid to rest as the financial crisis sent Norilsk's shares plummeting that fall. Under pressure from the state to avoid infighting that could harm Norilsk, which is listed as a strategic company, Potanin and Deripaska made peace in November 2008.

Under the agreement, neither side would discuss the merger for three years, RusAl and Interros would each have four directors on the board, and shareholders in the two companies would not be elected as Norilsk directors.

The arrangement also saw two heavy hitters from the state join Norilsk to ensure that the feuding stop.

Voloshin, a former head of then-President Vladimir Putin's administration, became chairman at Norilsk, and shareholders tapped Strzhalkovsky, a former KGB agent also seen as close to Putin, as CEO.

But cracks in the arrangement began forming this spring after RusAl, fresh off a successful IPO and debt restructuring, began criticizing Norilsk management and arguing that the company should pay 115 percent of its 2009 net income in dividends.

Strzhalkovsky's office criticized the proposal, and Norilsk eventually approved a dividend of 50 percent of profit.

RusAl also included Deripaska, its CEO and 48 percent owner, on its list of potential nominees to the board. Deripaska was among the three RusAl nominees who won a seat.

A representative from Prokhorov's Onexim Group, who was supposed to have one of RusAl's seats at Norilsk under an earlier agreement, was not elected Monday.

"The conflict wasn't resolved in 2008 and is now flaring up again. The shareholders meeting demonstrated it," said UralSib analyst Dmitry Smolin.

"The fact that an independent director — Titov — proposed by Interros became the board chairman may be considered Interros' small victory," Smolin said.

Shareholders also stand to gain from Interros' de facto control because the holding is interested in Norilsk's long-term development, said Ilya Makarov, an analyst at Rye, Man & Gor Securities.

He said Deripaska treated Norilsk as a cash source to help pay off RusAl's debt, which contradicted the interests of other shareholders.

Small-time shareholders in Norilsk — which has depositary receipts trading in London and New York — may also see their shares gain in value as Interros and RusAl bulk up on floating shares.

"The sides are likely to increase their stocks in the company by buying shares from the open market to increase their chances ahead of the emergency shareholders meeting," Smolin said.

RusAl's shares in Hong Kong are unlikely to be affected, however, since Asian investors are much more concerned about the company's debt, he said.

RusAl's shares closed unchanged in Hong Kong on Monday.

Smolin said RusAl's claim regarding the treasury shares was unlikely to hold up.

"The shares on subsidiaries' balance sheets are voting shares and take part in making decisions during shareholders meetings. It's a common practice for Russia," he said.

RusAl's statement that Norilsk's management voted "against the election of Voloshin" is inaccurate, since the election process only allows shareholders to vote in favor of directors, Smolin said.

Despite the shift in power, RusAl has a chance of restoring its parity at the next meeting, he said.

"If the minority shareholders' turnout is not very high — like it was at the recent meeting — RusAl is likely to restore the status quo," Smolin said.

A surprising 92 percent of owners cast votes Monday, Kommersant and Vedomosti reported, with 75 percent of the votes cast before the meeting started.

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