Norilsk Nickel step adds new pressure on Rusal

Norilsk Nickel (GMKN.MM) said on Friday it had increased the size of its share buyback, aimed at twisting the arm of major shareholder RUSAL (0486.HK) into selling up, because of strong demand from investors.

Its Corbiere Holdings unit said the world's largest nickel and palladium miner had raised the buyback to 13.9 million shares -- or 7.3 percent -- from 11.9 million, as bids from 13.1 million shares had already been submitted.

Norilsk management and 25 percent owner Vladimir Potanin are locked in a row with Oleg Deripaska, whose aluminium company RUSAL also owns a quarter of the world's biggest nickel and palladium miner.

Corbiere Holdings Ltd had initially offered to buy up to 6.2 percent of shares and American depositary shares (ADS) for $3 billion, in a move analysts said was aimed at further reducing Deripaska's influence.

According to Reuters calculations, the offer increase could cost Norilsk an extra $500 million

The price was set at $252 per share, with a premium of $32.59 to the closing price of the shares at Dec. 27, on the eve of the offer. Norilsk shares rose since then and were traded at 7,502 roubles ($250.5) a share at 1434 GMT on Friday, after rising as high as 7,519 roubles after the Corbiere announcement.

The buyback offered shareholders a quick profit and the sale of stakes in a company whose future prospects risk being harmed by the raging shareholder row.

However ahead of the results some bankers and fund managers had said demand could be curbed by the fact that the offer price is close to market levels, and expectations of further share price gains on the back of high copper prices.

Copper CMCU3, one of Norilsk's main products, hit a record high of $9,781 on Wednesday, but has retreated since to $9,447 at 1253 GMT on the London Metals Exchange.

Those who expect higher copper prices to boost Norilsk will have the opportunity to sell their shares to Norilsk later in the year, with the second stage of the buyback plan featuring $1.5 billion of purchases on the open market.

It was not immediately clear if the amount to be spent on open market purchases would be reduced as a result of the increased offer on Friday.

"This is not the end of the story," Vadim Astapovich, an analyst with the VTB Capital bank, commented.

"Now Corbiere has four days to calculate the pro-rata and how many shares it will actually buy."

TWISTING ARMS

Deripaska's RUSAL has filed three lawsuits demanding the overturning of some Norilsk board decisions aimed at strengthening rival Potanin's position -- including the buyback and the sale of an 8 percent stake to trading company Trafigura.

All three deals were opposed in board votes by Deripaska, who lacks sufficient representation to block major transactions.

The buyback is widely seen as a means to force Deripaska, who is at odds with Potanin over the ways to manage the company, to sell RUSAL's stake.

Norilsk offered last year to buy RUSAL's stake for an above-market $12 billion, but Deripaska refused to sell, although Norilsk had hinted it could increase its offer.

A source close to the talks told Reuters on Wednesday that Norilsk is unlikely to pay a dividend for 2010, as it spends cash on the buyback instead.

This would not make RUSAL happy, as the company needs cash to repay its debts. Deripaska has been a vocal proponent of higher dividends at Norilsk, while the management has preferred to invest more into the business.

RUSAL reduced its net debt to $11.75 billion as of Sept. 30 last year, down from $13.63 billion at the end of 2009.

RUSAL (0486.HK) and Interros, an investment vehicle of tycoon Vladimir Potanin, will not participate in the buyback.

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