OREANDA-NEWS. June 03, 2010. Suleiman Kerimov, an owner of Polyus Gold, is a potential buyer of a controlling stake in Uralkali from its Board Chair Dmitry Ribolovlev, according to Interfax. Reportedly, Kerimov has offered cash and Polyus shares for Uralkali’s shares, at the a price of USD23/GDR (a 22% premium to the current market price), reported the press-centre of OTKRITIE Financial Corporation.    

Based on current market prices (USD18.8/GDR), 51% of Uralkali is valued at USD 4.06bn. The report noted that negotiations for the stake are also taking place with Vladimir Potanin, Mikhail Prokhorov and Vladimir Lisin.

View: Uralkali’s stock is up 25% since the media announced a possible sale. We expect the deal between Kerimov and Ribolovlev to include both cash and a swap of assets. At present, Kerimov’s stake in Polyus is valued at USD 3.6bn. We believe a deal between Kerimov and Ribolovlev is the most likely scenario, since Kerimov’s assets have the lowest financial leverage. Nevertheless, another participant (likely Potanin) could join the deal. Ribolovlev owns 65.6% of Uralkali. If he decides to sell all his shares, the size of the deal would be USD 6.4bn, and Kerimov would likely need a partner to complete the deal. While the potential sale of Uralkali to an investor with strong ties with the state could be seen as a positive development, we are cautious about the stock since we expect higher volatility in the name before the acquisition occurs.

Valuation and Action: Uralkali trades on a 2011EV/EBITDA of 6.5x, versus 7.6x for EM peers. We reaffirm our HOLD rating.