TNK BP Holdings: Prosperity says Rosneft ‘morally’ obliged to buyout minorities
Rosneft [ROSN RU] is “morally” obliged to make an offer to TNK BP Holdings’ [TNBP RU] minority shareholders once it has closed its acquisition of TNK-BP International, said Prosperity Capital Management founding partner, Mattias Westman.
TNK-BP Holdings is a 95% owned subsidiary of TNK-BP International whose joint owners BP [BP/:LN] and AAR separately agreed last year to sell their stakes to Rosneft in deals worth a combined USD 55bn. Both deals are set to close in the next few weeks and analysts expect Rosneft, who will then own 100% of TNK-BP International, to subsequently offer the TNK BP Holdings minorities a share for share deal.
“If Rosneft is prepared to pay [USD 55bn] for TNK BP International, the minorities should be offered the same deal,” said Westman. Prosperity is among the larger minority shareholders in TNK-BP Holdings.
TNK BP Holdings shares would be worth nearly twice their current market value if Rosneft made an offer at the same terms of the BP cash and shares deal, said Westman. BP received USD 17.1bn in cash and 1.36bn shares representing 12.84% of Rosneft, which has a market value of around USD 80bn. AAR, a consortium of Russian oligarchs, sold out to Rosneft for USD 28bn in cash.
TNK BP Holdings has an implied value of around USD 27.3bn based on the 5% free float’s share price of RUB 56.74. "Rosneft, as a leading company in Russia, is morally obliged to maintain its good name by making an offer," said Westman who believed such a move would remove some of the discount applied to Russian stocks. Russian equities have in the past few years been amongst the poorest emerging market performers in terms of earnings multiples.
The treatment of the TNK BP Holdings minorities, meanwhile, has been described as a litmus test for Russia’s investment climate. “Rosneft has not said it won’t make an offer to the minorities. [I believe] they are thinking about it,” said Westman clarifying that Rosneft had not confirmed this directly to Prosperity. “We have spoken to [Rosneft] but not in the past week,” he said.
Minorities might have legal recourse
Igor Sechin, Rosneft’s president has invited the minorities to approach the Russian oil giant but has also said Rosneft is under no obligation to make an offer.
But Anton Sitnikov, partner and head of Corporate at Goltsblat BLP, said TNK BP Holdings minorities might have legal recourse should Rosneft not opt to make them an offer.
"Current court practice and literal interpretation of joint stock company law is that minorities’ rights to be bought out are not triggered when the deal is an indirect acquisition of shares in an open joint stock company (OJSC), such as TNK BP Holdings", said Sitnikov. That is, he explained, when a shareholder is being bought out rather than a direct acquisition of shares in the OJSC, such as in this case.
Therefore, under existing law, Sechin appears to be correct in that Rosneft is under no obligation to make an offer to the minorities, the lawyer said. But there is a draft clarification ruling circulating that “suggests” the Supreme Commercial Arbitration Court (VAS) could overrule the current position and this would change effective application of the said obligation, said Sitnikov.
The “draft of information letter” by VAS suggests that a mandatory buyout offer requirement shall be also made to minority shareholders in a joint stock company in the event of an “indirect acquisition”, he said.
The publically available draft clarification currently states that “in cases of deviation from the mandatory offer, or disagreement with the proposed mandatory offer price for the shares, the security holders have the right to go to court to demand any of the affiliates to buy back shares”. If it became effective in its current form, the draft clarification would therefore change the existing practice, said Sitnikov.
“[TNK BP Holdings] minorities may therefore still try to make their case to argue that that a buyout requirement should still be applicable, he said. “And it would not be a complete surprise if the courts start to accept such a view.”
Prosperity’s Westman acknowledged the legal option and confirmed Prosperity had looked into it. But he thought there was only a small chance it would succeed in pushing Rosneft into making an offer.
Alexander Kuznetsov, chief consultant of the Private law department of the Supreme Commercial Court said the spirit of this [clarification document] is to give more guarantees regarding shareholders’ rights during acquisitions. If approved, it would require shareholders who own more than 30% in a company, to make offer to other shareholders, he explained, while stressing he could not comment on the Rosneft/TNK BP Holdings situation.
At the moment, a party who buys more than 30% of shares in a company, is restricted in its voting rights in regards to shares exceeding 30%, until the party proposes an offer to other shareholders. Also a party who buys more than 30% of shares and has not proposed an offer to other shareholders, may face an administrative fine, Kuznetsov explained.
The clarification document was discussed for the first time in March 2012, but it is not clear whether or when this document may be approved, Kuznetsov added.
Rosneft and TNK BP International declined to comment.
By Ed Vinales and Natalia Lapotko
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