Uralkali slips through minorities’ fingers


Minority shareholders complain to Central Bank about squeeze-out
Kommersant no. 139 as of August 7, 2019

The minority shareholders of Uralkali were disappointed with the mandatory buyout price of 120 rubles per share offered by the majority owners, despite a premium of 20% above the market. They requested the Central Bank of Russia to check the deal between the entities of Sberbank and the potash producer’s major shareholder Dmitry Lobyak which enabled him to start the squeeze-out of the minority shareholders. However, the general market sentiment is that the situation cannot be reversed as everything was within the law.
As Kommersant found out, the Association of Institutional Investors (API) requested the Central Bank to check the transaction concluded between Rinsoco Trading, a company belonging to large Uralkali shareholder Dmitry Lobyak, and Sberbank Investments (a subsidiary of Sberbank). API Executive Director Alexander Shevchuk sent the related letter on August 6.
Rinsoco Trading sold 10.18% of Uralkali shares to Sberbank at an undisclosed price and repurchased them at 89.3 rubles per share (for a total amount of about RUB 26 billion) in mid-June. Later, on August 5, majority Uralkali shareholders Rinsoco Trading, Dmitry Mazepin’s Uralchem (19.9% of shares) and Uralkali (which holds 56.5% of its own shares through Uralkali-Technologies) recognized as one group of persons announced a mandatory buyback of securities from minority shareholders (i.e. squeeze-out). The deal with Sberbank helped to comply with the legal requirements: the share of majority shareholders exceeded 95% and the stake purchased in the last transaction was at least 10%. The price offered to the minority shareholders (the remaining free float being 3.27%) was 120 rubles per security, 20% above the current stock price as of August 5.
On August 6, the stock price soared by 17% to 117.5 rubles.
The API considers this level insufficient. During the several buyback programs implemented since 2011 the price ranged from 78 to 229 rubles per share. In 2015 when the company’s free float still enabled the majority shareholders of Uralkali to meet the squeeze-out requirements the price was 210 rubles, the API reminds. The currently offered squeeze-out price does not reflect the potash producer’s real value, assuming a price/net profit ratio of 2x compared with 7x for PhosAgro, for example, and 15-20x for traded securities of foreign companies. Transactions with Uralkali shares may be perceived as “artificial buyback price manipulation” with the aim of acquiring the shares at knockdown price in a while, Alexander Shevchuk notes.
Uralkali, Sberbank and the Central Bank of Russia would not comment on the situation. In Rinsoco’s view, the offered buyback price is fair, the company told Kommersant: “It is more than 40% above the average prices of real transactions on the exchange in the last six months – at least until the buyback announcement hit the market. That’s a significant premium.”
Kommersant’s sources in the market believe there is no way to reverse the situation now, given that the shareholders previously agree on squeeze-out terms with the Central Bank. However, the regulator can make an experienced judgment, or the majority shareholders may decide to voluntarily raise the offer price, one of the sources notes.
“Again, we make it obvious to everyone that minority shareholder rights are not nearly protected during takeovers of public companies. A very simple and completely overt law circumvention scheme is enough to violate their interests,” Denis Spirin, Director for Corporate Governance of Prosperity Capital Management, told Kommersant. In his view, the regulator and courts should recognize such schemes as concerted circumvention actions.
According to Andrey Naberezhny, head of projects at Yakovlev & Partners Law Offices, despite signs of concerted action by Rinsoco Trading and Sberbank Investments, the transaction is in accordance with the law. Minority shareholders can hardly appeal against them or the actual buyback procedure, but they can well try to challenge the offer price, he notes. “If the minority investors prove that the buyback price went down as a result of deliberate actions of the majority shareholder, the court may rule to recover the loss from the latter based on what the shares really cost,” the lawyer says adding that the API’s letter to the Central Bank, once again, highlights the weaknesses of the Russian law as regards the position of minority shareholders. Nikita Kulikov, Executive Director of Heads Consulting, agrees that the legality of the Uralkali stock purchase should not be questioned now that the deal is completed, the regulator raised no objections and no-one can be called an injured party to it.
Olga Matyushenko, Andrey Raysky

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