Russian Oil Giants Call Off Merger

A merger between two major Russian oil companies that was put on hold last month after the arrest of a leading tycoon will be abandoned, though suitable terms for the divorce must still be negotiated, the larger firm announced Wednesday.

The collapse of the nearly completed deal, which would have created the world’s fourth-largest oil producer, will deliver a serious blow to the Russian economy’s prospects, particularly in terms of foreign investment, many observers fear.

“It is a very tough blow against private business in Russia,” said Mikhail G. Delyagin, board chairman of the Institute for Globalization Studies, a Moscow think tank.

Yuri Beilin, deputy chief executive of Yukos Oil Co., said at a news conference that the main shareholders of his company and its smaller former rival Sibneft “have come to an agreement to conduct a deal to reverse the original takeover agreement.” Detailed financial terms that protect all shareholders’ rights still must be worked out, he said.

The failure of the deal was linked to the October arrest on fraud and tax-evasion charges of principal Yukos shareholder Mikhail Khodorkovsky, Russia’s richest person, whose net worth was estimated by Forbes magazine this year at $8 billion.

Another billionaire, Roman Abramovich -- who was the main Sibneft shareholder before the merger turned 92% of the company’s shares over to Yukos -- had hoped to acquire control of the combined company, many analysts say. After it became clear that he had failed, Abramovich wanted out of the deal.

“I think it is not the end of the affair,” Delyagin said. “It is just a signal that the attempt to capture Yukos in a frontal attack failed.”Actions against Khodorkovsky are viewed by many observers as attempts to undercut someone who angered President Vladimir V. Putin by getting too actively involved in politics. Putin has denied that the tycoon’s arrest was politically motivated.

Earlier this year, Khodorkovsky made no secret of his desire to support political forces that could help prevent Putin from gaining a tighter grip on power. He made large financial contributions to Russia’s two key Western-style parties, Yabloko and the Union of Right Forces.

“The level of meddling in politics that [my opponents] believe to be unacceptable is a completely normal thing for any normal country,” Khodorkovsky told The Times in an August interview. “I’m not trying to wear two hats at once, that of businessman and politician. But I have no intention of denying myself the ordinary rights that civil society gives me.”

Many observers believe that Khodorkovsky, who remains imprisoned pending trial, was targeted by officials who want to rein in the so-called oligarchs who acquired much of the nation’s wealth in controversial 1990s privatization deals. Many in the anti-oligarch faction come from state security services and are associated with Putin, a former KGB lieutenant colonel.

There also were indications that the Kremlin was uncomfortable with the potential political influence that a merged Yukos-Sibneft could possibly yield, particularly if it became partly foreign-owned. The merged company potentially could have been valued at $35 billion.

Khodorkovsky was “victimized not because he violated the rules, but because somebody just wants to take his company away from him,” Delyagin said. “He really wanted to make his company fully transparent and take it away from the tangles of corruption.”

When authorities chose to go after such a man, “business was plunged into a state of complete uncertainty,” Delyagin said. “Business in Russia now doesn’t understand what rules to play by, and what rules the leadership ... is playing by either.”

Sibneft spokesman Alexei Firsov confirmed the breakup plans, telling state-run television that “the termination of the merger deal is fully coordinated” between the two sides.

“There is no conflict here, but there is an agreement reached among the main shareholders,” he said. “There are no corporate wars here. Everything is fine.”

At Wednesday’s news conference, Yukos officials stressed that their company would enjoy good growth prospects even after reversing the merger.

But analyst Delyagin said authorities have the power to drive down Yukos’ value by taking away many of its licenses, “which will be transferred to more politically loyal companies.” That might make it an attractive target for a Russian firm, which could hope to see the licenses restored after a takeover, he said. But it wouldn’t necessarily be a wise investment for foreign oil companies, he added.

“I don’t think any transnational company of some standing will go and buy Yukos now, even though its price is considerably lower than it was last summer,” Delyagin said. “Of course it is commercially advantageous but it is very unprofitable reputation-wise. That is, you can buy a stolen Mercedes for $10,000 and drive it around. But if people find out about it they will stop shaking hands with you.”

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Times staff writer Sergei L. Loiko contributed to this report.