Russia’s largest oil company gets bigger

Yukos, country’s largest, buys Sibneft, becomes world’s fourth largest

Vladimir Isachenkov

Associated Press Writer

Russia’s largest oil company, Yukos, announced April 22 that it would buy a smaller rival, Sibneft, in an agreed takeover that would create one of the world’s biggest oil concerns.

Yukos will pay $3 billion in cash for an initial 20 percent stake in Sibneft and by the year’s end acquire the rest of Sibneft, which is currently Russia’s No. 5 oil company, both companies said in a statement.

If finalized, the deal would be the largest in Russian history, creating a company of unprecedented wealth and clout. Yukos attempted to buy Sibneft in 1998, but the planned merger then fell through amid a drop in oil prices and disagreements over management.

Yukos’ chief executive and largest shareholder, Mikhail Khodorkovsky, will be chief executive of the new company to be named YukosSibneft Oil Co., while Sibneft President Eugene Shvidler will become its chairman, the statement said.

With daily oil output expected at 2.06 million barrels, the new company will be the fourth-largest oil producer inferior only to BP, ExxonMobil and RD Shell and surpassing such giants as ChevronTexaco and TotalFinaElf. It will have total reserves of around 19.4 billion barrels of oil and gas equivalent.

“By combining with Sibneft, we’ll maximize our competitive advantages thanks to the synergy gained by uniting excellent management teams, highly professional labor forces and the profitable industrial assets of the two companies,” Khodorkovsky said.

“The new industrial giant with its huge industrial and financial potential will reach even higher business efficiencies, moving closing to our strategic goal of becoming a leader of the global energy market,” Khodorkovsky added.

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 major that will enhance value to its shareholders and better serve its millions of customers.”

According to the statement, the co-shareholders of Sibneft will subsequently exchange their remaining shares at a ratio of 0.36 of YukosSibneft for each 1 percent share in Sibneft. The swap ratio wouldn’t apply to Sibneft’s minority shareholders, who will later receive a separate “fair offer” based on an independent valuation by an internationally recognized investment bank.

Sibneft’s market capitalization has been at about 31 percent of the two companies’ combined market value over the last six months on average.

Prior to completing the transaction, Yukos plans to increase its leverage and is considering cash distributions to its shareholders in the form of dividends and share buybacks among other options, the statement said.

The merger is to completed by the end of 2003, subject to the approval of shareholders and all requisite regulatory consent. Khodorkovsky refused to give any further details of the deal, saying they still need to be resolved.

He told reporters that the merger would allow the new company to explore prospective domestic oilfields in Eastern Siberia and Far East.

The combined entity is expected to 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. These facilities refined a total of 57.7 million tons (421.8 million barrels) in 2002.