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Russian Oil Company Sibneft Suspends Yukos Merger - 2003-11-28

The Russian oil company Sibneft said Friday it has suspended its merger with the Yukos oil company. The decision delays and possibly ends plans to create what would have been the fourth largest oil company in the world. The reasons for the move are not clear, but it comes after a months-long criminal investigation of Yukos and its jailed former chairman.

The Sibneft company made the surprise announcement in a one-sentence statement issued just after the start of a meeting of shareholders of the two oil companies.

The statement said simply that "the completion of a merger between Yukos and Sibneft has been put on hold with a mutual agreement reached between the shareholders of both companies."

But the current head of Yukos denied that there was any agreement to delay the deal, and told the meeting the Yukos management team would continue to work on the merger.

The confusion only worsened the impact of the Sibneft statement on Russia's stock market, where shares of both companies fell sharply before recovering slightly.

The suspension was particularly shocking because one part of the merger has already been completed. A large stake in Sibneft has already passed to key shareholders of Yukos, in exchange for stock shares and $3 billion in cash.

In the planned merger, Sibneft would effectively have been taken over by the much larger Yukos, something that may also have given pause to Sibneft management, considering the legal situation surrounding Yukos.

The former Yukos chairman, Mikhail Khodorkovsky, was arrested last month and charged with tax evasion and fraud. Many observers saw his arrest as a political move by the Kremlin because Mr. Khodorkovsky was openly funding opposition parties ahead of a legislative election next month.

The case has caused concern in Russia and abroad that the Russian government may be starting a general crackdown on big business.

President Vladimir Putin has strongly denied that.

A spokesman for Sibneft declined to comment further on the suspension of the merger. But some business observers suggested that Roman Abramovich, one of Sibneft's biggest shareholders, may want to renegotiate the merger.

Mr. Abramovich has made headlines in recent months after he purchased the English football team Chelsea and relocated to Great Britain.

He is one of Russia's billionaires known as "oligarchs" who made fortunes in controversial deals a decade ago during the chaotic days after the collapse of the Soviet Union.