RUSAL rejects offer to sell Norilsk stake for $12 billion

（Reuters） - UC RUSAL （0486.HK） on Tuesday rejected an offer to sell its 25 percent stake in Norilsk Nickel （GMKN.MM） to the Russian mining giant for $12 billion, dashing investors' hopes of an end to a long-running shareholder row.

Norilsk, the leading nickel and palladium miner, said late on Tuesday that RUSAL rejected its above-market offer.

A source close to Norilsk's shareholders told Reuters that the company was willing to raise its offer to $14 billion, but Oleg Deripaska, who controls RUSAL, wanted $16 billion.

Norilsk Nickel decided not to offer that much because it was concerned that this amount could harm its finances, the source said.

Investors had hoped for a sale of the stake to end a long-running feud between Norilsk's two core owners, Vladimir Potanin and Deripaska, who are at odds over the company's strategy and dividends policy.

Expectations of a deal were boosted by news that two high profile RUSAL shareholders -- Mikhail Prokhorov and Viktor Vekselberg -- support selling the stake. Prokhorov, in a Reuters interview, had voiced concern that the shareholder row could hurt Norilsk.

Investors were also encouraged by the world's top aluminum producer hiring Bank of America Merrill Lynch to value its Norilsk stake.

The current market capitalization values RUSAL's 25 percent stake in Norilsk at about $10.65 billion, according to Reuters calculations.

Accepting the deal would have enabled RUSAL in one go to pay off its debts, which threatened to drag down the company during the global economic crisis.

RUSAL shares have added nearly 19 percent since December 16, when Norilsk announced its offer. At HK$12.1, the stock is now some 12 percent above its January IPO price.

Norilsk Nickel shares have held broadly stable in recent sessions, set to end 2010 with gains of nearly 60 percent thanks to a recovery in global metals prices and outperforming a rise of only 22 percent on the broad MICEX index.

BUYBACK PLANS

If RUSAL decides not to sell the stake, its influence in Norilsk may dwindle as that company pushes ahead with a share buyback. The company last week said it would buy back $4.5 billion worth of its shares in two stages.

"The management and Interros, Potanin's investment vehicle, could assemble up to a 50 percent stake in the company… and ensure full control, albeit with one hostile blocking shareholder （UC RUSAL）," Troika Dialog said in a research note.

RUSAL has said it opposes the buyback and has called for an emergency general meeting in its second attempt to elect a new board at Norilsk. On the 13-person board, RUSAL has three seats and Interros has four.

"Once the money is allocated for this （buyback）, RUSAL is unlikely to receive any other offer in the medium term," UralSib said.

Norilsk Nickel said that Deripaska at Tuesday's board meeting voted against the company's plan to increase capitalization, which includes the buyback.

（Reporting by Polina Devitt. Additional reporting by Aleksandras Budrys. Writing by Toni Vorobyova. Editing by Erica Billingham and Robert MacMillan）