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Russia's Yukos looks to save merger

Yukos shareholders have told management to seek talks with estranged merger partner Sibneft to see if the deal can be salvaged, sources at the embattled Russian oil firm said Tuesday.
/ Source: Reuters

Yukos shareholders have told management to seek talks with estranged merger partner Sibneft to see if the deal can be salvaged, sources at the embattled Russian oil firm said Tuesday.

One source said representatives of both core and minority shareholders at a meeting in London had authorized the management to reopen talks.

The source was unable to say what concessions, if any, the Yukos shareholders were prepared to make in order to save the $11 billion merger but said they had agreed to give management "all authority to negotiate further in order to get discussions open again."

While YUKOS shareholders have said they want to save the deal, they are getting clear signals that Sibneft shareholders want out, another source close to Yukos said.

Earlier in the day Russia's Radio Ekho Moskvy had said the merger had already been scrapped.

Analysts said a failure to merge would leave Yukos even more exposed to judicial harassment by the authorities.

It would also shatter the dream of Yukos's main shareholder, jailed oil tycoon Mikhail Khodorkovsky, of creating a Russian oil giant that would rank alongside the largest western firms.

The radio report quoted sources close to talks in London as saying the two sides had agreed that Yukos and Sibneft, which almost completed a merger before smaller partner Sibneft called a halt to it 11 days ago, could now go their separate ways.

"The terms, including financial terms, of the divorce will be announced shortly," the radio quoted an unnamed source as saying.

Yukos shareholder Leonid Nevzlin, in Israel after fleeing Russia to escape arrest, was quoted by Interfax news agency as saying talks between the two sides were still on. "I have no information about the severing of this deal. This is unofficial information and I do not wish to discuss it," said Nevzlin.

Yuri Kotler, a spokesman for holding company Menatep through which Khodorkovksy and his allies control a 44 percent stake in Yukos, told Reuters he could neither confirm nor deny the report.

The report came just two days after parties close to President Vladimir Putin, some of them calling for Russia's rich business oligarchs to be cut down to size, won a resounding victory in parliamentary elections.

The merger was undermined by a judicial assault, believed to have been orchestrated by the Kremlin, on the politically ambitious Khodorkovsky and his allies.

In a sign that pressure on the main Yukos shareholders was not abating, tax officials Tuesday searched the headquarters of Menatep St Petersburg, a bank owned by Menatep.

Yukos shares closed 4.6 percent lower at $10.20.

Traders and analysts said they feared judicial attacks on Yukos would now be stepped up once the company was cut loose from Sibneft, whose main shareholder Roman Abramovich is known to enjoy good relations with the Kremlin.

"If this is confirmed it will crystallize the view that Yukos is very lonely and vulnerable," said Adam Landes, an oil industry analyst at investment bank Renaissance Capital.

"There is a plot to remove Menatep as a Yukos shareholder and the authorities will do everything to reduce the value of its main asset Yukos and to increase its liabilities."

The Tax Ministry was reported last week to have accused Yukos of owing $5 billion in back taxes.

Landes said he believed Yukos's stock value would sink in the coming weeks if the breakup was confirmed.

Yukos agreed to buy Sibneft in April, paying $3 billion in cash and swapping 26 percent of Yukos shares for 92 percent of Sibneft, to create the world's fourth-largest oil firm measured by production.

Sibneft, controlled by Abramovich who also owns London soccer club Chelsea, said in late November it had decided to suspend the merger for technical reasons.

The move came only a few weeks after the arrest of Khodorkovsky, Russia's richest man and the main shareholder in Yukos, on charges of fraud and tax evasion.

The arrest was seen as the culmination of a campaign to cut the politically ambitious billionaire down to size.

"This is very negative news for Yukos, as hopes that its partner Sibneft might protect it in the legal row, have evaporated and the firm is now standing face-to-face with the state authorities," said Steven Dashevsky from Aton brokerage.

He said Aton was now planning to change Yukos's fair value estimate on the assumption more negative news could come shortly. He said he believed Yukos would be traded at around $8-$9 per share next year.

"I think it will take the whole market down," said NIKoil head of trading Andrei Kukk. "Even if (confirmation from the companies) it doesn't happen now, it will continue to put pressure on the market."