Russian oil firm Sibneft said it had suspended its merger with partner YUKOS on Friday, freezing a landmark $11 billion post-Soviet deal that has been dogged by pre-election political controversy.
The company's announcement, which came without explanation shortly after the start of a joint shareholders' meeting to elect board members to the newly merged company, stunned financial markets in Moscow and abroad, and sent YUKOS and Sibneft shares tumbling.
By 8 a.m. EST, YUKOS shares were down seven percent at $11.15. Sibneft shares were also down seven percent at $2.27 after falling as much as 11 percent earlier.
"The completion of a merger between YUKOS and Sibneft is suspended due to a mutual agreement reached between the core shareholders of both companies," Sibneft said in a statement.
A spokesman for YUKOS later said the statement was not issued jointly. YUKOS Chief Executive Simon Kukes said it came as a surprise and told the shareholders meeting that management would continue working on the merger.
He added that YUKOS would make its own statement later in the day on the Sibneft move.
One of YUKOS's key shareholders, Leonid Nevzlin, who fled Russia to Israel fearing prosecution, also declined to comment.
Sibneft gave no further explanation for the suspension of the buyout, in which a 92 percent stake in Sibneft has already passed to YUKOS's main shareholders in exchange for YUKOS shares plus $3 billion in cash.
YUKOS's Chief Operating Officer Stephen Theede said it was unclear if YUKOS could return the Sibneft shares it already holds and recover the cash it has paid for them.
Both companies have said that under the terms of the merger, either party would have to pay a penalty fee of $1 billion to get out of the deal.
Russian Economy Minister German Gref said the turmoil around YUKOS could hit flows of investment into the country.
But some stockbrokers said they suspected Roman Abramovich, the oil tycoon who recently bought English soccer club Chelsea and is a big Sibneft shareholder, wanted to renegotiate the deal or even pull out all together and seek a Western buyer instead.
"As far as the market is concerned this is a done deal. The announcement doesn't make sense. At the end of the day people will assume sinister motives until it's clarified," said Chris Weafer, a chief strategist at Alfa-Bank.
"Obviously people will assume... Abramovich is trying to change the terms at the last minute," he added.
Last month YUKOS's main shareholder and then chief executive Mikhail Khodorkovsky was arrested on charges of tax evasion and fraud. He remains in jail and has quit his post.
Khodorkovsky was supporting opposition parties ahead of upcoming Russian presidential and legislative elections and was even believed to have presidential ambitions.
President Vladimir Putin's crackdown on him and other wealthy businessmen who emerged in the privatization era of the 1990s has proved popular with the Russian electorate.
The merger deal, effectively a takeover of Sibneft by larger YUKOS, was to have created the world's fourth largest oil firm and by far Russia's biggest private commercial enterprise.
"This is a very negative news for YUKOS," said Valery Nesterov, oil analyst at Troika Dialog brokerage. "Even given the current difficult situation around the company, the market did expected it to complete the merger."
Shares in both firms are still listed and still trading because minority shareholders have yet to be made an offer. Friday's meeting was called to approve a $2 billion YUKOS dividend. The meeting went ahead and the payout was approved.
A Russian broker in London said suspension of the deal could open the way for Western oil firms already eager to exploit Russia's energy riches to step in.
U.S. giant ExxonMobil was holding talks with YUKOS about buying a stake when Khodorkovsky was arrested.
That arrest spread panic among financial markets, who feared that the government was launching a broadside against big business that could lead to controversial privatisations conducted in the 1990s being revoked.
Relative calm appeared to have been restored in recent weeks after President Vladimir Putin reassured investors that other companies would not be drawn into the YUKOS investigation.
But public prosecutors, who said on Wednesday they completed their investigation into Khodorkovsky, have kept up relentless pressure on YUKOS, searching the company's offices earlier this week and seizing documents.
The OECD on Thursday said in a toughly-worded reported that the YUKOS affair could hit Russia's economic growth next year and may have a lasting impact on business confidence.
The company's announcement, which came without explanation shortly after the start of a joint shareholders' meeting to elect board members to the newly merged company, stunned financial markets in Moscow and abroad, and sent YUKOS and Sibneft shares tumbling.
By 8 a.m. EST, YUKOS shares were down seven percent at $11.15. Sibneft shares were also down seven percent at $2.27 after falling as much as 11 percent earlier.
"The completion of a merger between YUKOS and Sibneft is suspended due to a mutual agreement reached between the core shareholders of both companies," Sibneft said in a statement.
A spokesman for YUKOS later said the statement was not issued jointly. YUKOS Chief Executive Simon Kukes said it came as a surprise and told the shareholders meeting that management would continue working on the merger.
He added that YUKOS would make its own statement later in the day on the Sibneft move.
One of YUKOS's key shareholders, Leonid Nevzlin, who fled Russia to Israel fearing prosecution, also declined to comment.
Sibneft gave no further explanation for the suspension of the buyout, in which a 92 percent stake in Sibneft has already passed to YUKOS's main shareholders in exchange for YUKOS shares plus $3 billion in cash.
YUKOS's Chief Operating Officer Stephen Theede said it was unclear if YUKOS could return the Sibneft shares it already holds and recover the cash it has paid for them.
Both companies have said that under the terms of the merger, either party would have to pay a penalty fee of $1 billion to get out of the deal.
Russian Economy Minister German Gref said the turmoil around YUKOS could hit flows of investment into the country.
But some stockbrokers said they suspected Roman Abramovich, the oil tycoon who recently bought English soccer club Chelsea and is a big Sibneft shareholder, wanted to renegotiate the deal or even pull out all together and seek a Western buyer instead.
"As far as the market is concerned this is a done deal. The announcement doesn't make sense. At the end of the day people will assume sinister motives until it's clarified," said Chris Weafer, a chief strategist at Alfa-Bank.
"Obviously people will assume... Abramovich is trying to change the terms at the last minute," he added.
Last month YUKOS's main shareholder and then chief executive Mikhail Khodorkovsky was arrested on charges of tax evasion and fraud. He remains in jail and has quit his post.
Khodorkovsky was supporting opposition parties ahead of upcoming Russian presidential and legislative elections and was even believed to have presidential ambitions.
President Vladimir Putin's crackdown on him and other wealthy businessmen who emerged in the privatization era of the 1990s has proved popular with the Russian electorate.
The merger deal, effectively a takeover of Sibneft by larger YUKOS, was to have created the world's fourth largest oil firm and by far Russia's biggest private commercial enterprise.
"This is a very negative news for YUKOS," said Valery Nesterov, oil analyst at Troika Dialog brokerage. "Even given the current difficult situation around the company, the market did expected it to complete the merger."
Shares in both firms are still listed and still trading because minority shareholders have yet to be made an offer. Friday's meeting was called to approve a $2 billion YUKOS dividend. The meeting went ahead and the payout was approved.
A Russian broker in London said suspension of the deal could open the way for Western oil firms already eager to exploit Russia's energy riches to step in.
U.S. giant ExxonMobil was holding talks with YUKOS about buying a stake when Khodorkovsky was arrested.
That arrest spread panic among financial markets, who feared that the government was launching a broadside against big business that could lead to controversial privatisations conducted in the 1990s being revoked.
Relative calm appeared to have been restored in recent weeks after President Vladimir Putin reassured investors that other companies would not be drawn into the YUKOS investigation.
But public prosecutors, who said on Wednesday they completed their investigation into Khodorkovsky, have kept up relentless pressure on YUKOS, searching the company's offices earlier this week and seizing documents.
The OECD on Thursday said in a toughly-worded reported that the YUKOS affair could hit Russia's economic growth next year and may have a lasting impact on business confidence.
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