Russian oil companies Yukos and Sibneft on Monday quietly called off their planned merger into the giant holding company Yuksi, confirming widespread speculation that the deal was on the rocks.
The companies released a statement to news agencies declaring the merger off, killing their plans to build the biggest oil company in Russia and the third largest private oil major worldwide.
"Yukos oil company and AO Sibneft have called off discussions on their proposed merger. The two companies will focus instead on restructuring individually in view of recent volatility in the Russian capital markets and the continued weak oil price," the statement said.
The statement added that the companies will work together in a lesser capacity, with Yukos continuing to market Sibneft's refined oil products and Sibneft continuing to refine Yukos' crude oil.
Such cooperation pales in comparison to the world-class oil company Yukos and Sibneft described when they first announced the merger in January. The merger "positions us to compete effectively in the global marketplace with world-class assets and people," the companies said at the time.
Yuksi would have produced 1.3 million barrels of oil per day, placing Yuksi third worldwide behind Royal Dutch/Shell and Exxon in terms of production and eclipsing LUKoil as Russia's largest oil company.
But feuding between the merger's architects -- Yukos-Rosprom head Mikhail Khodorkovsky and Sibneft investor Boris Berezovsky -- has apparently sunk the plan and left both tycoons with egg on their faces.
"When companies are going to join forces they have to consider not once, but twice or seven times what they are doing," said Alexander Blokhin, an oil analyst with United Financial Group. "If they are pulling apart it shows that as business partners they could be unreliable."
The divorce likely kills French oil major Elf Aquitaine's plans to buy a five percent stake in Yuksi for $528 million. The French investor, originally brought to the bargaining table by Sibneft, could still work out a deal with either company.
Cracks in the Yuksi scheme began to appear early this month, when a top Yukos official said the merger talks had reached a tense point. The companies raised further doubt last week when they announced the merger would be completed by the end of the year, and not by the original July 1 deadline.
Market watchers have offered different theories on the origins of the power struggle. Yukos was to have owned 60 percent and Sibneft 40 percent of the venture.
Blokhin said Yukos became alarmed at Sibneft's financial status after examining the company's books. The analyst said Sibneft owes $35 million in back taxes and $65 million in wage arrears to its workers, a predicament that prompted Yukos to push for a larger share in the merged Yuksi.
Neither company could be reached for comment Monday.
Other industry sources speculated Berezovsky was also unhappy with his personal compensation in the merger, which was to have been based on a percentage of Yuksi's revenue or profit. But with the market for world oil prices depressed and no recovery in sight, Berezovsky, realizing his compensation would be meager, may have balked at losing control of Sibneft.
The banker has never admitted controlling Sibneft but was to have received a stake in Yuksi in recognition of his investments in Sibneft.
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