Russia's Norilsk eyes $5 bln share buyback

MOSCOW, Jan 31 (Reuters) - Russian metals giant Norilsk Nickel (GMKN.MM) is considering buying back shares worth up to $5 billion in a bid to help a top shareholder, Vladimir Potanin, avoid a merger with a rival firm, a newspaper said on Thursday.

Vedomosti business daily quoted sources close to Norilsk as saying the buyback had yet to be approved but, if cleared by the board, the shares purchased from the market would not be cancelled but retained as treasury stock with voting rights.

Norilsk is co-owned by billionaires Potanin and Mikhail Prokhorov, who are engaged in a protracted split of their various assets. Prokhorov agreed last year to sell his stake of over 25 percent to aluminium giant United Company RUSAL, controlled by metals magnate Oleg Deripaska.

Deripaska is seen as one of the most loyal businessmen to the Kremlin and UC RUSAL has said it considers the deal with Prokhorov as the first step toward a full merger of the firms.

Industry sources have said Potanin opposes the idea, as he would be deprived of his decision-making role and entitled only to a minority stake in the combined firm.

Potanin, given first right of refusal on Prokhorov's stake, failed to find $15.7 billion in December to outbid UC RUSAL. But he and the company still have substantial cash sums to fund the buyback, which would be Norilsk's fourth in recent years.

Norilsk Nickel declined to comment on Vedomosti's report.

Industry sources told Vedomosti that Norilsk could fund the buyback with money from the planned sale of its power generation assets, which could raise up to $7 billion.

Norilsk's board will discuss the sale of power assets, which include OGK-3 (OGKC.MM), on Feb. 4. At a board meeting in December, Prokhorov declined to back a proposal to spin off the power assets into a separate company. (Reporting by Dmitry Zhdannikov and Aleksandras Budrys; Editing by Louise Ireland)