#5 - RW 269
Russia approves Yukos-Sibneft merger, boosts Khodorkovsky
August 14, 2003
AFP

Russian authorities approved a merger between oil giants Yukos and Sibneft Thursday, creating the world's fourth-largest private oil producer and boosting the political fortunes of embattled Yukos chief Mikhail Khodorkovsky.

The anti-monopoly ministry spent weeks examining a merger that forms the new group with 18.4 billion barrels in proven oil reserves -- the largest held by any single firm -- and 5.9 trillion cubic feet in proven natural gas reserves.

The merged entity would be an international colossus with a combined market capitalization of 35 billion dollars (31 billion euros), capable of marshalling huge financial resources to exploit far-flung oil fields.

Yukos shares jumped 1.5 percent and those of Sibneft 1.9 percent within minutes of the announcement.

The new company's creation was originally announced with great fanfare last April. It reunited two majors that had said they would merge only five years ago before bitterly falling out over the terms of the deal.

The formation of the new entity, YukosSibneft, must still be approved by the companies' shareholders before year's end and meet a set of conditions.

The company will be headed by current Yukos chief executive Khodorkovsky while Sibneft President Evgeny Shvidler will chair its board of directors.

The company's merger hung in the balance for weeks as prosecutors pursued a series of criminal probes into Yukos, arresting one of its top executives, Platon Lebedev, who remains in jail.

British media reported the merger plan could also be in jeopardy because of an interest from US major ChevronTexaco, said to be in talks with a view of taking a 25-percent stake in Yukos.

The judicial assault on foreign investor darling Yukos, in which no fewer than eight investigations are under way, had been interpreted as an attempt by factions within the Kremlin to wrest control of one of the country's most thriving and powerful enterprises.

It was also seen as a part of a broader political battle between Khodorkovsky -- Russia's richest man who is openly financing several opposition parties ahead of December's parliamentary elections -- and more hawkish clans within the Kremlin made up of former KGB chiefs.

Yukos shares took a deep dive as the investigation continued -- bringing down the Russian market with it and fanning fears that both local and foreign investors would flee abroad.

Meanwhile rumors of a potential redistribution of property won by tycoons in shadowy mid-1990s privatization deals saw the return of capital flight to Russia in recent weeks.

But market analysts were relieved to hear the news of the merger even with the ministry's three conditions.

One of the conditions requires YukosSibneft to make sure the new giant would allow independent retailers to operate in their zone of influence.

The second orders it to reprocess crude pumped by competitors, if technical conditions allow.

The final condition was that the new group must allow third parties to take part in construction projects -- including the planned pipeline to the lucrative Asia market.

Market analysts said terms were regular practice in Russian business law.

"They have given this deal a green light," said Steven Dashevsky, head of research at Aton Capital.

"Basically the demands that the anti-monopoly ministry is making are non-demands," Dashevsky said.

Yukos has been engaged in a bitter fight with the oil transport monopoly Transneft over who would win the right to control pipes running to either China and Japan.

The China project backed by Yukos has already been approved by the government and the last point would suggest that YukosSibneft would not retain exclusive rights to the new Asia pipes.

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