- The Washington Times - Friday, November 28, 2003

MOSCOW (AP) — An acquisition involving the Yukos oil company was put on hold yesterday, a new blow to the embattled giant as it struggles to recover from the jailing of its former chief.

Yukos’ proposed partner, Sibneft, said the action was taken “in accordance with a mutual agreement reached by the shareholders of both companies.”

Since Mikhail Khodorkovsky stepped down as head of Yukos after his Oct. 25 arrest on fraud and tax evasion charges, the company’s managers had said the deal was on track, and its new chief executive, Simon Kukes, said yesterday the decision to halt it took him by surprise.

“The process of merging the companies is continuing and will not be interrupted,” the Interfax news agency quoted Mr. Kukes as telling a shareholders’ meeting that had been called yesterday to rename the new company YukosSibneft and elect a new board of directors.

But Sibneft spokesman Alexei Firsov said managers might have been unaware of the decision by shareholders, and Yukos shareholders later agreed not to go ahead with the board election and other merger matters at the initiative of Sibneft’s owners, Interfax quoted Leonid Nevzlin as saying.

Mr. Nevzlin has been reported by Russian media to have been given “beneficiary rights” to 50 percent of shares in Yukos holding company Group Menatep by Mr. Khodorkovsky.

The two companies announced the deal in April, when Yukos said it would acquire Sibneft in a friendly takeover for $3 billion in cash and a share swap. Sibneft’s core shareholders already have paid cash and swapped their shares to become owners of 26.01 percent of Yukos.

The deal to create the world’s fourth-largest oil producer was finalized in September, but its fate has been a question since the government accused Mr. Khodorkovsky and many of his associates of financial crimes, including fraud and tax evasion.

Mr. Khodorkovsky is No. 26 on Forbes magazine’s latest list of global billionaires, with an estimated wealth of $8 billion.

Some analysts said Sibneft wanted to avoid becoming entangled with Yukos amid the legal troubles, which are widely seen in Russia as the results of a politically motivated attempt to curb Mr. Khodorkovsky’s growing political clout.

The most likely motive for suspending the deal is that Sibneft shareholders “considered the situation around Yukos serious enough to avoid taking the risk,” said Valery Nesterov, oil analyst at the Russian investment bank Troika Dialog.

William Browder, CEO of Moscow-based Hermitage Capital Management, said it was more likely a move by Sibneft to take advantage of the pressure on Yukos and Mr. Khodorkovsky to “squeeze a better deal” out of the beleaguered company.

“It’s either fear or greed, and I believe it’s probably greed — that they’re trying to negotiate a better deal,” he said.

Mr. Browder also deemed it possible that Sibneft would try to find a new buyer, but that the acquisition was so far along that it would be difficult to scuttle entirely.

The news surprised the market, followed a long series of assurances by Yukos that the purchase was on track. The benchmark RTS index closed 2 percent lower yesterday, while Yukos shares dropped 5.3 percent from Thursday’s close.

The Yukos-Sibneft merger would be the largest such deal in Russian corporate history, with the new company expected to generate $15 billion in annual revenue and have an estimated market value of $35 billion.

With daily oil output expected at 2.06 million barrels, YukosSibneft would have become the world’s largest oil producer after Exxon Mobil, BP and Royal Dutch Shell, with total reserves of around 19.4 billion barrels of oil equivalent.


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