Another Metals Merger, Troika-Style

If the tough task of assembling a three-way deal benefits from simplicity and an absence of competing bids, the aluminum giant bolted together by R...
Roy HarrisSeptember 1, 2006

The merger binge in the global natural resources realm accelerated on August 30 with Russia’s proposed three-way creation of an aluminum behemoth.

Rusal Ltd. agreed to take over its smaller Russian rival Sual Group, along with the raw alumina assets of Glencore International AG, a Swiss commodities trader. If completed, the exchange of shares in the closely held companies would make the combined entity the world’s largest aluminum maker, surpassing even Alcoa Inc. and Canada’s Alcan Inc. Rusal would own 64.5 pecent of the new company, which will have estimated annual revenue of $15 billion.

Three-company combinations normally invite failure just by their complex nature and their potential for sparking competitive bids. But early reviews of Rusal’s agreement with Sual and Glencore suggested that it had something of an edge. For one thing, the Russian government, while not quite the powerhouse of past eras, stands behind it as part of a drive to assemble huge national companies to compete with the West.

For another, some of Russia’s industrial heavy hitters are involved in the deal. According to press reports, billionaires Oleg Deripaska and Victor Vekselberg control Rusal and Sual, respectively.

Some earlier Russian-led merger attempts have been foiled, however. OAO Severstal was not able to complete its $16.7 billion attempt to buy Arcelor SA, its French steel-making competitor. It hasn’t been that long, either, since Russia’s OAO NK Yukos and OAO Sibneft had to call off their oil-industry merger. At the time, Yukos CEO Mikhail Khodorkovsky was being tried in Moscow for tax evasion.

The Swiss third of the proposed Rusal/Sual/Glencore-assets trio, incidentally, was founded by Marc Rich, who sold his Glencore interests in 1994. Rich—who left the U.S. before being indicted for tax evasion and illegally trading oil with Iran during the hostage crisis of 1979 to 1981 — was pardoned by President Bill Clinton in 1991.