Moscow Times
September 29, 2005
Gazprom Scoops Up Sibneft for $13Bln
By Catherine Belton
Staff Writer
Gazprom said Wednesday it had agreed to buy control of Roman Abramovich's Sibneft for $13.01 billion in the biggest takeover deal in Russian history.
The deal will put nearly one-third of the nation's oil output in state hands and revive Gazprom's bid to become a global energy giant, just months after it failed to acquire prize oil assets through a merger with state-owned Rosneft earlier this year.
Gazprom, already the world's No. 1 natural gas producer by volume, will gain 910,000 barrels per day in oil output, making it the nation's No. 5 oil producer.
It will also put several more billion dollars into the pockets of Abramovich, the 38-year-old owner of Chelsea Football Club, who together with his former business partner Boris Berezovsky bought Sibneft for the bargain basement price of $100 million a decade ago.
"The acquisition of Sibneft is aimed at resolving Gazprom's strategic task of becoming a global energy company and a world market leader," said Gazprom chairman Dmitry Medvedev, who is also President Vladimir Putin's chief of staff.
The deal, the second major energy acquisition by the state in less than a year, is unprecedented as the state is paying near market price to buy back a firm it sold for next to nothing in the loans-for-shares auctions a decade ago, analysts said.
It stands in marked contrast to last December's forced acquisition by Rosneft of Yukos' main production unit, Yuganskneftegaz, over a $28 billion back tax bill. While Sibneft often maintained a lower effective tax rate than Yukos, Abramovich's firm has not faced any legal action from the state. Former Yukos owner Mikhail Khodorkovsky has been convicted on fraud and tax evasion charges and sentenced to eight years in jail.
The deal values Sibneft at around $3.20 per barrel of reserves, a price that is broadly in line with valuations for other Russian oil majors and slightly less than the company's market capitalization, said Valery Nesterov, oil and gas analyst at Troika Dialog.
While Sibneft's price tag appears cheap compared to valuations of Western majors, the deal looks like an expensive buy for the state. State-owned Rosneft acquired Yugansk for the equivalent of $1.25 per barrel, while BP paid $1.80 per barrel for half of Tyumen Oil, said Chris Weafer, chief strategist at Alfa Bank.
Others, however, said Gazprom had gotten a good deal.
"This is a very elegant outcome," said Bill Browder, CEO of Hermitage Capital Management, which has $2 billion in Russian stocks under management. "Gazprom gets Sibneft for cheap, and Abramovich gets to walk away with $13 billion."
"If there had been an international tender, Sibneft could have gone for twice the price," he said.
Gazprom said in a statement that it had agreed to buy the 72.663 percent stake in Sibneft belonging to Millhouse Capital for $13.01 billion. Sibneft has never disclosed who owns Millhouse, but says the core shareholders of Sibneft include Abramovich and other members of the company's management team.
Gazprom also revealed Wednesday that it had acquired 3.016 percent of Sibneft recently bought on the open market by its Gazprombank subsidiary. The extra shares will give Gazprom full control over Sibneft and preclude any minority shareholder from having a blocking stake of 25 percent plus one share.
"The financing has been agreed and it won't be a problem," said a banker involved in the consortium of Western banks financing the deal. Gazprom has won commitments for a $12 billion loan from the consortium, which includes Morgan Stanley, ABN AMRO and Dresdner Kleinwort Wasserstein.
Questions remained, however, about whether the effective re-nationalization of Sibneft would bring any benefits to the economy or make either company more efficient. Growth in national oil output has been slowing since the state acquired Yuganskneftegaz late last year.
"It would have been better to keep independent producers than for Gazprom to become larger," said Mattias Westman, managing director of Prosperity Capital Management, which owns $1 billion in Russian stocks. "Gazprom needs to be broken up to be efficient. It has proven itself to be the least efficient operator of assets in Russia."
Gazprom minority shareholders have long complained about the gas giant's runaway costs and corporate inefficiencies.
"The principal issue is that Sibneft is turning into a state company," said Troika's Nesterov. "It will have higher social spending and political costs, and it will be harder to fight against theft and corruption.
Sibneft's production has been in decline for most of this year as its owners have let go of the reins ahead of the sale. Output at the company's main production unit, Noyarbskneftegaz, slumped 8 percent over the first eight months of this year, according to Steven Dashevsky, head of research at Aton brokerage.
For Gazprom to restore Sibneft to double-digit growth, it may have to invest hundreds of millions, or even billions, of dollars, analysts said.
Some investors said that sky-high oil prices meant it did not matter how Gazprom manages Sibneft, for now at least.
"Even if Gazprom manages it badly for a year or two, it really doesn't matter when oil is at $64 per barrel," Browder said
Although production at most of Sibneft's fields has declined, output at its Slavneft joint venture, owned equally with TNK-BP, is booming and high domestic prices have also boosted refining margins.
Bob Foresman, managing director of the Moscow office of Dresdner Kleinwort Wasserstein, which has been advising Gazprom on the deal, said the Sibneft deal would help Gazprom unlock potential at its other oil assets.
It was not immediately clear who would be appointed to run Sibneft, as Gazprom spokesman Sergei Kupriyanov declined to comment on the issue. But a source familiar with the situation said he expected most of Sibneft's present managers to be kept on.
The Sibneft deal has yet to be put to Gazprom's board, but most analysts expected it to be easily approved.
Other investors, however, were steeling themselves for possible upsets. "They've tried to sell Sibneft three times now," Browder said. "There can always be last-minute snags."
The bigger role of two state-owned companies in the sector could eventually put the squeeze on privately owned firms, Weafer said.
"If it gets to the point where there's a crunch in infrastructure, then the state companies are going to be in the driving seat," he said.