Rusal announces 3-way merger

October 10, 2006 Filed Under: Bauxite Mining, Mining Services  

Russia’s OAO Rusal dethroned Alcoa Inc. as the world’s biggest aluminum producer Monday after announcing a three-way merger that will create a US$30 billion (€23 billion) giant with 12 percent of global output.

The deal underscored the rise of Russia’s commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal’s billionaire owner Oleg Deripaska.

The new company ”” which will absorb Rusal’s Russian rival Sual as well as the Alumina assets of Swiss-based commodities trader Glencore ”” will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.

“We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry,” said Sual’s president, Brian Gilbertson, a South African who will be non-executive board chairman at the new Rusal.

While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be tied up by April 2007.

Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.

Sual and Glencore will hold 22 percent and 12 percent stakes respectively in the new company.

Analysts have said that the three companies compliment each other perfectly: Sual has large holdings of bauxite, aluminum’s raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity ”” the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia’s aluminum industry after its carve-up in the chaotic privatizations of the 1990s that followed the Soviet Union’s collapse.

Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.

Rusal director Alexander Bulygin said the expanded Rusal will produce nearly 4 million tons of aluminum per year and has plans to ratchet up output to over 5 million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Alcoa reported in 2005. Bulygin said the company expected annual revenue of US$10 billion (€7.9 billion).

Under the terms of the agreement, Bulygin will become the new company’s chief executive. The company will have an 11-man board comprising six representatives of Rusal, two from Sual, one from Glencore and two independent directors.

While hailing the deal, Gilbertson stressed that it yet to receive official approval.

“There are number of challenges that lie ahead. The deal it has to be approved by the various regulatory bodies and that always takes a bit of time, there are hurdles that you have to get across,” said Gilbertson, a one-time CEO at mining giant BHP Billington.

Russian regulatory approval is expected to be a formality ”” both Deripaska and Vekselberg have met with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the parallel carve up of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin’s.

While the merger involves two privately held Russian companies ”” unlike the oil and gas industry, where the state still controls the main companies ”” observers said that it nonetheless is in keeping with Putin’s vision for the economy.

“With the extractive industries the Kremlin clearly favors consolidation and for Russian companies to become bigger global players,” said Chris Weafer, chief strategist for Alfa Bank in Moscow. “That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage.”

As well as creating a formidable global player the deal realizes a goal of Deripaska, 38, who has navigated the often-bloody waters of the Russian aluminum sector to create Rusal, together with billionaire Chelsea soccer club owner Roman Abramovich, in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for US$100 million as part of a campaign to bring home Russia’s cultural heritage. He made his fortune ”” US$10 billion according to Forbes magazine ”” from Sual and his interest in BP PLC’s Russian joint venture TNK-BP, currently Russia’s No. 2 oil producer.

MOSCOW Russia’s OAO Rusal dethroned Alcoa Inc. as the world’s biggest aluminum producer Monday after announcing a three-way merger that will create a US$30 billion (€23 billion) giant with 12 percent of global output.

The deal underscored the rise of Russia’s commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal’s billionaire owner Oleg Deripaska.

The new company ”” which will absorb Rusal’s Russian rival Sual as well as the Alumina assets of Swiss-based commodities trader Glencore ”” will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.

“We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry,” said Sual’s president, Brian Gilbertson, a South African who will be non-executive board chairman at the new Rusal.

While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be tied up by April 2007.

Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.

Sual and Glencore will hold 22 percent and 12 percent stakes respectively in the new company.

Analysts have said that the three companies compliment each other perfectly: Sual has large holdings of bauxite, aluminum’s raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity ”” the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia’s aluminum industry after its carve-up in the chaotic privatizations of the 1990s that followed the Soviet Union’s collapse.

Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.

Rusal director Alexander Bulygin said the expanded Rusal will produce nearly 4 million tons of aluminum per year and has plans to ratchet up output to over 5 million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Alcoa reported in 2005. Bulygin said the company expected annual revenue of US$10 billion (€7.9 billion).

Under the terms of the agreement, Bulygin will become the new company’s chief executive. The company will have an 11-man board comprising six representatives of Rusal, two from Sual, one from Glencore and two independent directors.

While hailing the deal, Gilbertson stressed that it yet to receive official approval.

“There are number of challenges that lie ahead. The deal it has to be approved by the various regulatory bodies and that always takes a bit of time, there are hurdles that you have to get across,” said Gilbertson, a one-time CEO at mining giant BHP Billington.

Russian regulatory approval is expected to be a formality ”” both Deripaska and Vekselberg have met with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the parallel carve up of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin’s.

While the merger involves two privately held Russian companies ”” unlike the oil and gas industry, where the state still controls the main companies ”” observers said that it nonetheless is in keeping with Putin’s vision for the economy.

“With the extractive industries the Kremlin clearly favors consolidation and for Russian companies to become bigger global players,” said Chris Weafer, chief strategist for Alfa Bank in Moscow. “That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage.”

As well as creating a formidable global player the deal realizes a goal of Deripaska, 38, who has navigated the often-bloody waters of the Russian aluminum sector to create Rusal, together with billionaire Chelsea soccer club owner Roman Abramovich, in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for US$100 million as part of a campaign to bring home Russia’s cultural heritage. He made his fortune ”” US$10 billion according to Forbes magazine ”” from Sual and his interest in BP PLC’s Russian joint venture TNK-BP, currently Russia’s No. 2 oil producer.

MOSCOW Russia’s OAO Rusal dethroned Alcoa Inc. as the world’s biggest aluminum producer Monday after announcing a three-way merger that will create a US$30 billion (€23 billion) giant with 12 percent of global output.

The deal underscored the rise of Russia’s commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal’s billionaire owner Oleg Deripaska.

The new company ”” which will absorb Rusal’s Russian rival Sual as well as the Alumina assets of Swiss-based commodities trader Glencore ”” will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.

“We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry,” said Sual’s president, Brian Gilbertson, a South African who will be non-executive board chairman at the new Rusal.

While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be tied up by April 2007.

Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.

Sual and Glencore will hold 22 percent and 12 percent stakes respectively in the new company.

Analysts have said that the three companies compliment each other perfectly: Sual has large holdings of bauxite, aluminum’s raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity ”” the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia’s aluminum industry after its carve-up in the chaotic privatizations of the 1990s that followed the Soviet Union’s collapse.

Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.

Rusal director Alexander Bulygin said the expanded Rusal will produce nearly 4 million tons of aluminum per year and has plans to ratchet up output to over 5 million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Alcoa reported in 2005. Bulygin said the company expected annual revenue of US$10 billion (€7.9 billion).

Under the terms of the agreement, Bulygin will become the new company’s chief executive. The company will have an 11-man board comprising six representatives of Rusal, two from Sual, one from Glencore and two independent directors.

While hailing the deal, Gilbertson stressed that it yet to receive official approval.

“There are number of challenges that lie ahead. The deal it has to be approved by the various regulatory bodies and that always takes a bit of time, there are hurdles that you have to get across,” said Gilbertson, a one-time CEO at mining giant BHP Billington.

Russian regulatory approval is expected to be a formality ”” both Deripaska and Vekselberg have met with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the parallel carve up of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin’s.

While the merger involves two privately held Russian companies ”” unlike the oil and gas industry, where the state still controls the main companies ”” observers said that it nonetheless is in keeping with Putin’s vision for the economy.

“With the extractive industries the Kremlin clearly favors consolidation and for Russian companies to become bigger global players,” said Chris Weafer, chief strategist for Alfa Bank in Moscow. “That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage.”

As well as creating a formidable global player the deal realizes a goal of Deripaska, 38, who has navigated the often-bloody waters of the Russian aluminum sector to create Rusal, together with billionaire Chelsea soccer club owner Roman Abramovich, in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for US$100 million as part of a campaign to bring home Russia’s cultural heritage. He made his fortune ”” US$10 billion according to Forbes magazine ”” from Sual and his interest in BP PLC’s Russian joint venture TNK-BP, currently Russia’s No. 2 oil producer.

MOSCOW Russia’s OAO Rusal dethroned Alcoa Inc. as the world’s biggest aluminum producer Monday after announcing a three-way merger that will create a US$30 billion (€23 billion) giant with 12 percent of global output.

The deal underscored the rise of Russia’s commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal’s billionaire owner Oleg Deripaska.

The new company ”” which will absorb Rusal’s Russian rival Sual as well as the Alumina assets of Swiss-based commodities trader Glencore ”” will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.

“We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry,” said Sual’s president, Brian Gilbertson, a South African who will be non-executive board chairman at the new Rusal.

While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be tied up by April 2007.

Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.

Sual and Glencore will hold 22 percent and 12 percent stakes respectively in the new company.

Analysts have said that the three companies compliment each other perfectly: Sual has large holdings of bauxite, aluminum’s raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity ”” the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia’s aluminum industry after its carve-up in the chaotic privatizations of the 1990s that followed the Soviet Union’s collapse.

Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.

Rusal director Alexander Bulygin said the expanded Rusal will produce nearly 4 million tons of aluminum per year and has plans to ratchet up output to over 5 million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Alcoa reported in 2005. Bulygin said the company expected annual revenue of US$10 billion (€7.9 billion).

Under the terms of the agreement, Bulygin will become the new company’s chief executive. The company will have an 11-man board comprising six representatives of Rusal, two from Sual, one from Glencore and two independent directors.

While hailing the deal, Gilbertson stressed that it yet to receive official approval.

“There are number of challenges that lie ahead. The deal it has to be approved by the various regulatory bodies and that always takes a bit of time, there are hurdles that you have to get across,” said Gilbertson, a one-time CEO at mining giant BHP Billington.

Russian regulatory approval is expected to be a formality ”” both Deripaska and Vekselberg have met with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the parallel carve up of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin’s.

While the merger involves two privately held Russian companies ”” unlike the oil and gas industry, where the state still controls the main companies ”” observers said that it nonetheless is in keeping with Putin’s vision for the economy.

“With the extractive industries the Kremlin clearly favors consolidation and for Russian companies to become bigger global players,” said Chris Weafer, chief strategist for Alfa Bank in Moscow. “That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage.”

As well as creating a formidable global player the deal realizes a goal of Deripaska, 38, who has navigated the often-bloody waters of the Russian aluminum sector to create Rusal, together with billionaire Chelsea soccer club owner Roman Abramovich, in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for US$100 million as part of a campaign to bring home Russia’s cultural heritage. He made his fortune ”” US$10 billion according to Forbes magazine ”” from Sual and his interest in BP PLC’s Russian joint venture TNK-BP, currently Russia’s No. 2 oil producer.