On August 22, the NorNickel board adopted a decision to buy out 4.1% of the nickel giant's own shares at the weighted average price for the last 6 months: USD 253.8 per share, which implies a 27% premium on the current market valuation. The company's official spokesperson said that the buyout process "will be absolutely open and equally accessible for all shareholders".
This decision is highly positive for NorNickel minority shareholders, in our view. On one hand, in current conditions, a securities buyout is practically identical to a dividend payoff with a 4.2-4.3% yield, since the shares will be placed directly on NorNickel's balance. In line with our estimates, minority holders could present at least 9-10% of their shares for a buyout with a 27% premium to the market. At the same time, we believe that majority holders will not sell their shares within the buyout procedure. This practically limits the circle of contenders to the level of market free-float (approx. 45%).
This decision is also lucrative for NorNickel's largest shareholder, Interros, since the latter could raise its effective share of voting securities and will not be obliged to present a buyout offer to minority shareholders even if it crosses a 30% threshold.
We are generally upbeat on the company's decision to buy out more than 4% of its shares and believe it will have a positive impact on the nickel giant's market cap, at least in the short-term. However, the reasons behind the board's decision are largely related to an ongoing struggle between NorNickel main shareholders for control over the company. We also note that the buyout price is almost equal to our fair valuation for the company's shares. In line with our estimates, the fair value of NorNickel is USD 252 per share with a 26% upside potential.
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