Rosneft Announces Share Price for Minority Buyout
Published: October 2, 2013 (Issue # 1780)
On Monday, Sept. 30, Rosneft agreed to buy out the minority shareholders in RN-Holding (formerly TNK-BP) that remained from the Russian state energy company’s acquisition of TNK-BP in March this year. According to a Rosneft press release, the shares are valued at about $2 apiece.
Rosneft CEO Igor Sechin had previously been opposed to the idea. According to Bloomberg, Sechin’s company has over $71 billion in debt, largely as a result of this year’s TNK-BP acquisition. Recent deals that have seen Rosneft acquire expensive natural gas assets have left Sechin even less inclined to fork over the extra money to these minority shareholders, who represent 5 percent of the former TNK-BP. At $2 a share, full acquisition of these shares would cost Rosneft about $1.5 billion.
Though Rosneft formally set the share price on Sept. 30, the decision to buy was made three days earlier in the form of a verbal commitment between Sechin and Russian Prime Minister Dmitry Medvedev at the International Investment Forum in Sochi.
To an audience of Russia’s business elite, Medvedev spoke generally about the country’s foreign investment climate and what the state has been doing and what it will be doing to improve it. He stressed the importance of the state taking responsibility for corporate governance and explicitly highlighted three state companies: Gazprom, Russian Railways and Rosneft.
At this point in his speech, Medvedev turned and addressed the Rosneft CEO, who was sitting only two seats away. “I know that Rosneft, for example, still has an issue related to its minority shareholders, TNK-BP. Is this right, Mr. Sechin?” Sechin affirmed that it was.
Medvedev proposed that “to set an example of proper behavior,” Sechin’s company should buy these shareholders out.
Sechin addressed Medvedev but looked primarily at the audience and consented, albeit hesitantly.
“Taking into account your concern and solution…despite the absence of a legal obligation to repurchase part of these shares, we will fulfill your objectives, but on a voluntary basis.”
The issue that Medvedev was referring to dates back to Sechin’s initial refusal to buy out these minority shareholders or grant them 2012 dividends following the March acquisition that made Rosneft the largest oil company by market capitalization in the world. “Rosneft is not a charity,” Sechin had said earlier this year, in an attempt to explain this refusal.
One disgruntled shareholder, Gennady Osorgin, claimed that Sechin’s statements and actions had ruined the stock’s value and in June filed a complaint against him with the Russian Union of Industrialists and Entrepreneurs, or the RSPP, reported Vedomosti. Official review of the complaint is ongoing.
While Sechin’s change of heart in Sochi was likely a welcome surprise to minority shareholders, the proposed price of $2, announced by Rosneft on Monday, was a disappointment. The main shareholders of former TNK-BP, by contrast, received almost double that amount per share in the $55 billion acquisition six months ago. Half of TNK-BP had consisted of four tycoons — Mikhail Fridmen, German Khan, Viktor Vekselberg, Len Blavatnik — who ended up splitting $28 billion.
Rosneft is the world’s largest oil company by output and is expected to have earnings of $13.8 billion in 2013. This will make it the largest contributor to the Russian state budget.