Norilsk Nickel has started talks with Rusal over a deal to create a $60bn industrial metals champion better positioned to withstand the impact of western sanctions on Russia.
Vladimir Potanin, the billionaire businessman who controls more than a third of Norilsk, said he had agreed to discussions following an approach from the Moscow-based aluminium producer.
He cited the need to “acquire extra stability against sanctions” after Russia’s invasion of Ukraine, something that could be achieved by “further” diversifying Norilsk’s shareholder base. Potanin controls almost 36 per cent of Norilsk through his company Interros, while Rusal has a near 26 per cent stake.
“The latest offer we got from Rusal was to discuss the merger of Norilsk Nickel and Rusal,” Potanin told Russian business channel RBC on Tuesday. “We have reconsidered the idea . . . because this allows [us] to create a national champion. ”
A merger of the two companies would create one of the biggest metal producers in the world, with a combined equity market value of $60bn. To put that figure in perspective, miner and commodity trader Glencore is valued at $55bn.
Norilsk is a crucial supplier to the automotive industry, producing nickel for electric vehicle batteries, as well as palladium for the catalytic converters that limit harmful emissions in petrol and hybrid cars. Europe’s stainless steel industry is also a big buyer of its nickel.
Rusal is the largest supplier of aluminium outside of China and its metal is used by western carmakers as well as the aerospace industry.
After the news of the merger discussions, shares in Rusal rose 5 per cent while those in Norilsk declined 11 per cent on fears its generous dividend policy would be changed.
While there would be few industrial synergies from a merger, analysts said the combined entity would be harder to hit with sanctions.
Assuming a merger happens at current share prices Potanin’s stake would drop to 28 per cent while Rusal would hold about 25 per cent of the merged company, according to Kirill Chuyko, analyst at BCS Global Markets.
“The national champion idea may be seen as an additional guarantee against the potential geopolitical risks, but still it is not possible to be fully safeguarded this way,” Chuyko said.
“The parties have a long and extremely difficult history of relations, while business-wise the merger makes limited sense from synergies perspective.”
Rusal purchased its stake in Norilsk 14 years ago and has repeatedly clashed with Potanin over issues including the company’s dividend policy.
Norilsk has paid some of the highest dividends in the mining industry, but Potanin said the payments could not continue, citing other priorities such as maintaining uninterrupted production and fulfilling obligations to staff and the state.
A shareholder pact that was supposed to end the disputes between Potanin and Rusal was due to finish at the end of the year.
Unlike most Russian billionaires, Potanin had until recently largely avoided western sanctions, allowing him to snap up several Russian businesses, including Rosbank from Société Générale and a stake in Tinkoff bank.
That changed last week when the UK followed Canada in imposing sanctions on the billionaire over his control of Rosbank. Potanin said on Tuesday the personal sanctions did not affect his businesses and there were no restrictions on Norilsk.
Rusal was subject to US sanctions between April 2018 and 2019, a move that caused a spike in global aluminium prices and chaos in international manufacturing supply chains.
The sanctions were later dropped after the company’s oligarch founder Oleg Deripaska gave up control. Deripaska is still on a US sanctions list.
Potanin acknowledged the lack of synergies in a deal with Rusal, but said a merger could be justified by other arguments, including the idea of creating a world leader in metals needed for the energy transition.
He stopped short of saying who would head the new company should the merger proceed. Potanin has been chief executive of Norilsk since the shareholder pact was signed in 2012.
