OREANDA-NEWS. February 25, 2011. UC RUSAL (SEHK: 486, EuroNext: RUSAL/RUAL, MICEX: RUALR, RTS: RUAL), the world’s largest aluminium producer and owner of a 25% stake in MMC Norilsk Nickel, announced today that Glass, Lewis & Co. (“Glass Lewis”), the leading independent institutional proxy advisory service, recommended that shareholders of Norilsk Nickel vote FOR the proposal by RUSAL to approve the early termination of the powers of the Norilsk Nickel Board of Directors at the Extraordinary General Meeting of shareholders (“EGM”) to be held on 11 March 2011 and vote FOR the election of Messrs. Bebchuk and Holden.

In their report dated 22 February 2011, Glass Lewis supported RUSAL’s request to terminate the powers of the Norilsk Nickel Board of Directors to elect new Directors.  Glass Lewis also echoed RUSAL’s view that Norilsk Nickel must have a new, more balanced board to increase its effectiveness, including the presence of independent directors; as the report stated, “In our view, a new board that includes additional qualified independent directors can provide the necessary oversight of management and ensure that neither of the two major shareholders can, on its own, control the decision-making on the board.”

With respect to the independent nominees proposed to Norilsk Nickel’s board, Glass Lewis concluded, “[o]f the independent candidates, we favor Messrs. Bebchuk, Holden and Wilkinson, each of whom is indubitably independent.  In addition, both nominees Holden and Wilkinson have industry experience that would greatly benefit the board.”

To ensure that the minority shareholders’ vote is not overly diluted by voting for three directors, Glass Lewis recommended voting FOR the election of Bebchuk and Holden to Norilsk Nickel’s Board of Directors.  Glass Lewis also reflected RUSAL’s support for independent RUSAL nominee Alexander Voloshin, concluding, “If Voloshin and two of the aforementioned independent nominees are elected, the board will consist of at least three independent directors, which would be a marked improvement over the current composition of the board.” RUSAL fully agrees with this analysis, and encourages shareholders to support Messrs. Holden and Bebchuk, who, together with RUSAL’s support for Mr. Voloshin, can result in a “marked improvement” for the Norilsk Nickel board.

Glass Lewis also noted certain concerns regarding transactions that have taken place at Norilsk Nickel since the Company’s prior EGM, held on 21 October 2010.  With respect to the sale by Norilsk Nickel management of quasi-treasury shares to Trafigura in December 2010, Glass Lewis stated that “we find reasonable cause for reproach, most notably with respect to the opacity with which the transaction was executed, as well as management’s failure to involve the full board in the decision making process.” 

Glass Lewis questioned whether Trafigura would feel compelled to vote these shares in line with Norilsk Nickel’s instructions, pointing out that “certain of the share purchase agreement’s undisclosed terms, including any potential voting agreements or share lock-ups, could materially alter Tragifura’s behavior as a major shareholder of Norilsk going forward.  All other things equal, such terms might compel Trafigura to behave in much the same fashion as Corbiere and Raleigh [(Norilsk Nickel’s offshore subsidiaries)].”  

As RUSAL has previously noted, the absence of any Norilsk Nickel board oversight of the multi-billion-dollar Trafigura transaction, as well as Norilsk Nickel’s refusal to disclose the transaction terms, raises a serious concern that Norilsk Nickel management is seeking to control as much as 15% of the Company’s voting power (including the quasi-treasury shares created by the Company’s recent share buyback).  This attempt at control is in violation of every recognized corporate governance norm. 

Glass Lewis also criticized Norilsk Nickel’s pattern of voting its own shares (which are held at subsidiary companies).  In their report, Glass Lewis stated that they “firmly believe[] that treasury shares, or in this case, quasi-treasury shares (own shares held by subsidiary companies) should not be voted by management under any circumstances at shareholder meetings.” ISS Proxy Advisory Services (“ISS”), another leading institutional proxy advisory service, echoed this concern in their report published 18 February 2011, noting that the voting of quasi-treasury shares “stands in contrast to the spirit of the law.  This is a negative practice from a corporate governance standpoint, as it allows company management (which oversaw how the shares were voted) to exert direct control over the board, thus violating the principle that the board should oversee the activities of company management.”

RUSAL supports the conclusions of Glass Lewis pointed in its report. We look forward to working with minority investors in Norilsk Nickel to further develop a balanced board and substantially increase the value of Norilsk Nickel for all of its shareholders.