April 8, 2009 5:30 PM
International Intrigue Surrounds $4.2 Billion Russian Energy Deal
Posted by Brian Baxter
Russia's largest company, Gazprom, announced on Tuesday that it would acquire a 20 percent stake in its oil subsidiary Gazprom Neft held by Italian energy giant Eni. The $4.2 billion deal closes one of the final chapters on now-defunct Russian oil company Yukos.
Gazprom--50 percent of which is controlled by the Russian government--owns roughly 80 percent of Gazprom Neft. Eni initially acquired its 20 percent stake in Gazprom Neft in April 2007 as part of a bankruptcy auction of assets held by Yukos.
Eni turned to Dewey M&A partners Dan Coppel and Jonathan Hines, tax partner Judith Harger, and associates Alexander Marchenko and Anna Lessova for the divestiture. Hines previously advised the Rome-based company when it joined with Italian electric utility Enel to form the EniNeftgaz consortium. The consortium acquired a package of former Yukos assets at auction for $5.8 billion in April 2007, among them, the 20 percent stake in Gazprom Neft.
Cleary M&A partner Russell Pollack, who helped launch the firm's Moscow office in 1991, advised Gazprom on the acquisition of Eni's Gazprom Neft stake along with associates Christopher Smith, Joshua Blackmore, and Mikhail Suvorov. Pollack previously served as outside counsel to Gazprom on its arrangements with Eni and Enel to acquire former Yukos assets.
The deal--while seemingly just another multibillion-dollar transaction--presents a complicated story about the dismantling of Yukos and the larger effort by the Russian government to nationalize the country's natural resources.
Gazprom Neft emerged from one of the largest corporate takeovers in Russian history--Gazprom's $13.1 billion acquisition of a 75 percent stake in Russian oil company Sibneft in 2005. Sibneft tried to merge with Yukos in 2003 but was forced to abandon the deal after Yukos CEO Mikhail Khodorkovsky was arrested on charges of tax evasion that same year.
In the years following Khodorkovsky's arrest and subsequent nine-year prison sentence, a Russian court declared Yukos bankrupt in 2006. That triggered a controversial auction process of Yukos assets, including a 20 percent stake in Sibneft (now Gazprom Neft) owned by Yukos, which Eni and Enel secured with their successful $6 billion bid in 2007.
The auction was heavily criticized by Khodorkovsky's international defense lawyer, Bronx-born Robert Amsterdam of London- and Toronto-based Amsterdam & Peroff, who accused the Italian sister companies of complicity in carving up Khodorkovsky's company. (The Italian government owns roughly a third of both Eni and Enel.)
"Why state-controlled entities would engage in auctions that are facially fraudulent is beyond me to answer," Amsterdam told CNBC at the time. "Is there anyone who thinks that the Russians are turning to the rule of law when it comes to energy? What Gazprom gets or wants it will get--or it will change the law and destroy the courts to get it."
In October 2007 Gazprom exercised a call option--set to expire this month--to buy back the Yukos assets held by Eni and Enel. (Eni independently owned the stake in Gazprom Neft.)
Amsterdam stepped up his criticism, referring to the proposed sales as "asset-laundering," because they helped the Russian government and high-ranking Kremlin officials extricate themselves from potential liability in the Yukos affair. (Current Russian president Dmitri Medvedev was chairman of Gazprom at the time.)
Amsterdam reiterated his criticism on Tuesday when the Gazprom-Eni deal was formally announced at a ceremony in Moscow attended by Italian and Russian oil executives.
"This is the kind of conduct that's a textbook example of what corporations shouldn't do and what the Italian government has absolutely no right fostering," says Amsterdam by phone from Europe. "And it's easy to see who profits. The Italians had the courage to scoop up stolen [Yukos] assets that even Gazprom and Medvedev didn't have the courage to do."
Italian Prime Minister Silvio Berlusconi and Eni executives have touted the deal as part of a broad energy partnership with Russia and Gazprom.
As Amsterdam sees it, Italy has been bullied into Russia's corner as Gazprom forges a closer relationship with Algeria's state-owned energy company Sonatrach. (Italy imports nearly 90 percent of its energy needs; Gazprom is the world's largest producer of natural gas and North Africa is a major source of Italian energy.)
Dewey & LeBoeuf's lawyers for Eni declined to comment on the Gazprom Neft divestiture. Cleary's Pollack said in an e-mail that the firm does not comment on client matters.
Amsterdam doesn't blame the corporate lawyers for advising on the Gazprom Neft deal. He's more concerned with his client Khodorkovsky, whose second trial on money-laundering charges began last week in a Moscow court. Amsterdam says that he's been working on the case but from outside Russia--he's no longer allowed into the country.
Khodorkovsky faces up to 22 more years in prison if convicted.
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