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Russian oil majors merge in deal of the century

The new company will be the fourth-largest private oil producer in the world with an initial market capitalization of $35 billion. Analysts described the merger as the largest deal in the history of the domestic economy.
Oil majors merge in deal of the century
Gazeta.Ru, Russia, 22 April 2003

Two Russian oils majors, Yukos and Sibneft, have agreed to merge their assets, creating a new mega-group to be named the YukosSibneft Oil Company, the firms said in a joint statement released on Tuesday. The new company will be the fourth-largest private oil producer in the world with an initial market capitalization of $35 billion. Analysts described the merger as the largest deal in the history of the domestic economy.

Under the deal Yukos has agreed to pay $3 billion in cash for an initial 20% stake, and to acquire the rest of Sibneft by the end of the year. Yukos's chief executive and its leading shareholder Mikhail Khodorkovsky will become the chief executive of the new group, while Eugene Shvidler, the chief executive of Sibneft, will become the board chairman, the companies said in a statement.

The majority on the 11-strong company board will constitute independent directors. Sibneft is currently controlled by a small number of core shareholders, represented by the holding company Millhouse Capital, which holds 87% of the company. Yukos will pay Millhouse $3 billion in cash for the 20% stake, and will then buy out the remainder of Millhouse's stake at a ratio of 0.36% of YukosSibneft for every 1% of Sibneft.

The new company, to be formed as a result of the merger, will be the world's third largest in terms of oil and gas reserves (around 19.4 billion barrels of oil equivalent), after ExxonMobil and Shell. Daily crude oil output of the new company (including Sibneft's share in another Russian oil firm) will amount to some 2.3 billion barrels per day.

YukosSibneft is expected to export 70 million tons of oil annually. In 2002 the total output of the two companies amounted to 103.2 million tons (or 754.2 million barrels). Together Yukos and Sibneft produce 29 per cent of Russia's oil. The combined group will include six principal refineries in Russia, another one in the former Soviet republic of Lithuania, and several other refining facilities in Russia and in Belarus that are currently linked to Slavneft. Furthermore, the group will also have more than 2,500 filling stations, by far the largest chain in Russia.

Market analysts have long anticipated the merger. Some claim that both companies are remarkable for their similar management style and business ideology, supplementing each other well.

According to The Financial Times, the combined group has a good chance of remaining independent, generating and raising the resources necessary for new growth - notably from abroad - that Sibneft, and probably even Yukos, could not have achieved alone.

So far, neither of the companies involved in the deal has agreed to comment on the reports. Governmental agencies, too, refused to comment. In particular, the deputy minister for antimonopoly policy Andrei Tsyganov on Monday, when asked by Gazeta.Ru whether two major oil firms had applied to his agency for an endorsement of their merger, replied with a firm "no".

Speaking at a news conference on Tuesday, Mikhail Khodorkovsky said: "By combining with Sibneft, we'll maximize our competitive advantages thanks to the synergy gained by uniting excellent management teams, highly professional labour forces and the profitable industrial assets of the two companies."

"The new industrial giant with its huge industrial and financial potential will reach even greater business efficiency, moving closer to our strategic goal of becoming a leader of the global energy market," Khodorkovsky added.

Eugene Shvidler said the new company would be "a superb alliance of progressive and like-minded companies with complementary strategic and management strengths which effectively creates a new super-company that will enhance its value for its shareholders and better serve its millions of customers".

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