UPDATE 1-Billionaires court BP shareholders in TNK-BP row

Mon Jul 16, 2012 5:30am EDT

Related Topics

* Fridman seeks way out of shareholder impasse

* Oligarchs willing to sell stake to BP for cash, stock

* AAR see Russian govt support for sale to BP-source

* If BP wants to sell, AAR willing to buy 25 pct stake

By Douglas Busvine

MOSCOW, July 16 (Reuters) - The billionaire co-owners of Anglo-Russian oil venture TNK-BP would be willing to sell their stake to British oil major BP Plc for cash and stock to put an end to a bitter shareholder conflict.

That was the position presented by Mikhail Fridman, one of the quartet of investors who own half of Russia's third-largest oil company through the AAR consortium, to meetings in New York and Boston with large institutions that own BP stock.

"The message Mikhail Fridman delivered was that the partnership in its current form has run its course," AAR CEO Stan Polovets said on Sunday of the meetings last week, which followed up on a series of investor briefings in London in June.

"The shareholders need to find a way to realign ownership interests and eliminate the internal contradictions that are tearing TNK-BP apart."

No comment was immediately available from BP.

Shareholder relations at TNK-BP, which have often been rocky since BP came in as an equal partner in 2003, broke down last year when the British group tried to reach a strategic alliance with state-controlled Russian oil major Rosneft.

AAR blocked the deal in the courts, successfully arguing that it violated an exclusivity clause in the TNK-BP shareholders' agreement. The ensuing fallout has left the company without a board quorum, blocking dividend payments. Fridman quit in May as CEO and BP put its stake up for sale at the start of June.

EXPRESSION OF INTEREST

Under a timeline set by the shareholder pact, AAR has until the end of this week to express its interest in buying BP's stake. BP can negotiate with other interested parties but cannot do a deal with them for a further 90 days.

AAR will submit an expression of interest on July 19, Polovets said. It would be willing to buy one-half of BP's stake in TNK-BP - or a 25 percent stake - at a current market price of around $10 billion.

But AAR's preferred option would be to exchange its stake in TNK-BP for cash and a stake of 10-12 percent in BP. "It would make more sense for all parties involved," Polovets told Reuters.

Such a deal would release BP from the obligations under the TNK-BP shareholders' agreement barring it from partnering with other companies in Russia, such as Rosneft and gas export monopoly Gazprom, Polovets added.

At the same time, it would provide AAR with diversification, liquidity and a long-term exit strategy.

"Our objective is to be shareholders in a global company. We want to have liquidity and an exit strategy," Polovets said by telephone from New York.

The reaction of the BP shareholders to the idea that the British major buy out AAR from TNK-BP for cash and stock was "much more positive" than for AAR's own proposal to buy 25 percent of TNK-BP.

"Most shareholders had no concerns about AAR being a significant shareholder in BP," Polovets said, adding that AAR would not seek board representation and would accept a lockup agreement to avoid putting pressure on the stock.

In an ultimately futile attempt to unblock their strategic deal, Rosneft and BP offered in May 2011 to buy out AAR's stake for $32 billion through a joint venture under effective Rosneft control. The deal collapsed at the last minute.

Sources familiar with Russian government thinking have said that state energy holding Rosneftegaz, which controls Rosneft, would be interested in principle in buying out TNK-BP's Russian co-owners.

Talks between BP and AAR would, however, have to run the course set out in the shareholder pact before any deal involving Rosneft could emerge. With talks between BP and AAR yet to begin, that prospect may be a way off, one senior source said.

The "binary" nature of the TNK-BP ownership situation is negative for minority owners of its listed unit, TNK-BP Holding , said Renaissance Capital energy analyst Ildar Davletshin.

"While there are numerous permutations for a final solution at TNK-BP, we see only two possible outcomes: either one of the partners buys out the other side or a state player replaces one of the partners," Davletshin said in a research note to clients.

INFORMAL SUPPORT

Sources close to the Russian consortium say AAR has received informal indications from the Russian government that it would support a deal that hands outright control of TNK-BP to BP.

"AAR would not propose such a transaction if it were not confident of government support for a transaction through which BP would gain 100 percent control of TNK-BP," the source said.

Polovets indicated that AAR was not proposing that a share swap take place immediately.

"Such a deal could be structured to take effect over a period of five to seven years, during which AAR would continue to manage TNK-BP and help expand the company through relationships with Rosneft and Gazprom," he added.

"In the meantime, the management of BP could focus on stabilizing its operations elsewhere and grow its business outside of Russia so that the Russian barrels don't represent such a high percentage of BP's reserves and production."

At the same time, AAR has reiterated its readiness to buy half of BP's stake in TNK-BP, should BP be determined to divest.

"We are confident that BP will not receive any serious offers for its stake in TNK-BP; we are the only serious buyers," Polovets said, noting that BP had not asked AAR for permission to provide confidential data on TNK-BP to a prospective buyer in the six weeks since BP announced that it received an indication of interest from potential buyers.

Although AAR has not yet sought financing for its potential buyout of BP's 25 percent stake in TNK-BP, Polovets said the group had received unsolicited offers for financing of a possible deal from several major banks.

"We are holding off on the financing conversation. We want to get a deal with BP first," Polovets said.

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