BP bowed to demands from its
partners in TNK-BP to ease its grip on Russia's third-largest
oil producer to end a bitter dispute that had knocked BP's
shares and rattled investor confidence in Russia.
TNK-BP's top management, including BP-nominated Chief
Executive Bob Dudley, will be replaced, independent directors
will be added to the board and the owners will consider
floating 20 percent of the joint venture.
BP shares rose 4 percent on news of the framework deal.
BP and Alfa Access Renova (AAR), the vehicle that
represents the four Russia-connected billionaires who own 50
percent of TNK-BP, said the deal would be finalized in the
"This would be a much better outcome for BP than the market
has been anticipating," Richard Griffith at Evolution
Investors had feared that the hostile battle for control of
TNK-BP might lead to BP losing interest in the joint venture,
which analysts said was worth $45 billion, with only minimal
BP Chief Executive Tony Hayward said the terms agreed would
protect BP's investment going forward, even though its
effective management control over TNK-BP had been weakened.
"We've made some modest adjustments to give the company a
little more freedom," BP Chief Executive Tony Hayward told
Reuters in a telephone interview.
"We think this provides the platform for the next phase in
its (TNK-BP's) development and we look forward to continuing to
grow," he added.
Hayward said he hoped the recent attacks on TNK-BP,
including raids on its offices by security forces and tax
probes, which had prompted Dudley to flee Russia citing a
campaign of harassment, would now become less of a problem.
Russia's deputy prime minister Igor Sechin, a close ally of
Prime Minister Vladimir Putin and chairman of state-controlled
Rosneft, was quoted in AAR 's statement as praising the
partners for resolving their differences themselves.
"We support TNK-BP's development and believe this company
has excellent long-term prospects," Sechin said.
FEWER LEGAL PROBLEMS
The feud, combined with a government attack on a blue-chip
steel company and Russia's brief war in Georgia, contributed to
Russia being one of the world's worst performing markets in the
second half of 2008 so far, despite booming commodities
BP accused its partners of behaving like corporate
"raiders" from Russia's chaotic 1990s when asset stripping and
partner dilution was common. The Soviet-born billionaire
co-owners, led by Mikhail Fridman, in turn accused BP of
running TNK-BP like a subsidiary and Dudley of favoring BP
Alexander Branis, a director at Prosperity Capital, said
the agreement showed the dispute was "commercial and not due to
pressure that foreign investors experience in Russia."
Dresdner Kleinwort oil analyst Colin Smith said the deal
represented a defeat for the Russian partners who had sought to
wrest control and value from BP.
Hayward said there was a lesson for other investors: "It
demonstrates that you can do business in Russia provided you
are robust about how you do it ... From time to time you have
to take the gloves off."
He added that two of the four billionaires who own 50
percent of TNK-BP, Viktor Vekselberg and German Kahn, may lose
senior management roles at TNK-BP following the deal.
Khan oversees TNK-BP security and government relations, and
BP said his refusal to seek visas for foreign employees and BP
seconded had inflamed the companies problems with authorities.
BP shares were up 2.57 percent at 518.75 pence at 1238 GMT,
outperforming a 1.5 percent rise in the DJ Stoxx European oil
and gas sector index. Analysts said the stock had previously
discounted almost the total value of TNK-BP.
"Since February, BP has underperformed Royal Dutch Shell by
12 percent in US dollars, despite a 10 percent earnings
rerating relative to Shell," Citigroup oil analyst Mark
Bloomfield said in a research note.
Shares in TNK-BP Holding, a listed subsidiary which owns
the majority of TNK-BP's assets, rose 18 percent at one point
before falling back to trade up 10 percent.
Analysts at UniCredit Aton said the plan for an initial
public offering of a new subsidiary of TNK-BP which would hold
all its assets would make TNK-BP more attractive.
"A back of the napkin estimate suggests a 10 percent to 21
percent effect on the company's valuation."
Many analysts had believed the dispute would end only when
a government energy giant such as Gazprom or Rosneft,
instruments of the state's drive to bring Russia's oil wealth
under its control, got their hands on a TNK-BP stake.
TNK-BP's board, where each side has half the seats, will be
restructured. In future, each side will appoint four directors,
and three independent directors will hold the balance.
(Additional reporting by Dmitry Zhdannikov and Tanya
Mosolova in Moscow; Editing by Quentin Bryar/Rory Channing)
Merrill Lynch & Co's (MER.N) talks to sell bad
loans to Korea Asset Management Corp (KAMCO) faced a deadlock
due to a disagreement over price, the South Korean state agency
said on Thursday.
Bloomberg reported earlier, citing KAMCO chief executive
Lee Chol-Hwi, that the sale was faltering over differences in
assessing the value of assets.
"We have been in talks with Merrill but couldn't narrow the
price gap," said a KAMCO spokesman, confirming Lee's comments.
"Now we'll drop the discussion so far and start a new round of
KAMCO declined to give size and other details about
Merrill's assets it seeks to buy.
The government debt clearer is also "keeping channels" with
other U.S. institutions to buy distressed assets, the spokesman
said, without elaborating.
Failure to strike a deal may indicate Merrill, which has
been battered by more than $50 billion of credit market losses,
and Lehman Brothers Holdings Inc (LEH.N) might have to cut
prices for assets they are trying to sell.
No-one at Merrill Lynch was immediately available for
Another South Korean state-controlled institution, Korea
Development Bank, is in talks with Lehman over a possible joint
investment with other Korean banks in the U.S. investment bank.
In July, Merrill agreed to sell $30.6 billion of
collateralized debt obligations, a kind of repackaged debt, to
an affiliate of private equity fund Lone Star Funds, for just
$6.7 billion, or about 22 cents on the dollar.
(Reporting by Rhee So-eui in Seoul and Saumyadeb
Chakrabarty in Bangalore; Editing by David Holmes and Louise
Private equity firm Advent International
is merging Swiss duty-free retailer Dufry AG (DUFN.S) with its
U.S. airport retailer Hudson by means of a share swap that
leaves it a majority stake in Dufry.
Under the terms, Dufry will take over Hudson in an
all-share deal after having already acquired an 11.2 percent
stake in the U.S. company in April.
Hudson is already majority owned by Advent and this stake,
together with its existing holding in Dufry, will translate
into a 53.6 percent stake in the merged company for the private
equity group, which first invested in the Swiss firm in 2004.
The deal will also entail a refinancing of Hudson and Dufry
debt, with a five-year committed syndicated facility of about
1.25 billion Swiss francs ($1.13 billion), which Dufry said
will give it enough financial flexibility for its growth
Hudson's portion of the total debt is $390 million, while
the total value of Hudson's equity is $446 million.
Advent already had a 37 percent stake in Dufry. After the
deal is done, it will directly hold 26.7 percent of the merged
entity, while Travel Retail Investments will hold 26.9 percent,
reducing the Dufry free float to 46.4 percent.
Dufry shares were down 10.4 percent at 72.55 Swiss francs
at 0956 GMT.
The combined group will operate 1,000 shops at 137 airports
with a pro forma combined 2007 turnover of about 2.6 billion
Swiss francs. Dufry said it expected to realize annual revenue
and cost synergies of about 20 million francs within two years.
APPEALING PRICE TAG
Dufry, which operates around 466 duty-free and duty-paid
shops in airports and other tourist areas, said in a statement
Hudson had turnover of $666 million in 2007 and earnings before
interest, tax, depreciation and amortization of $85 million.
Vontobel's Rene Weber said Hudson's enterprise value is
$755 million, to give an enterprise value to EBITDA of nine
times, an attractive price compared to what catering giant
Autogrill (AGL.MI) paid to buy World Duty Free from Ferrovial
"We appreciate the potential in the internationalization of
Hudson, whilst Dufry, with its strong position in the travel
retail market, has the ideal set-up for applying Hudson's
successful model outside the USA," he said.
"The price tag is also very appealing, but the high
dependency on the USA will slow growth at Dufry."
In March, Autogrill spent $1.5 billion on airport retail
assets, including World Duty Free, to make it the world's top
"For Dufry, this transaction is a great opportunity to
build up a strong position in the duty paid segment which
complements Dufry's duty free business at a similar
profitability level," said Dufry Chief Executive Julian Diaz.
"The combination of Hudson's retailing expertise with
Dufry's know-how in international markets and global footprint
are a perfect match to create a duty-paid convenience store
concept on an international scale."
(Editing by Chris Wickham)