FOR 16 years they were the dream team of Russian business. Among the five
richest men in the country, worth a combined £15 billion, Vladimir Potanin
and Mikhail Prokhorov were not just co-owners of a metals and mining empire,
but also the closest of friends.
Often holidaying together, with many stunning young girls in tow, the two
partners were a regular fixture on the ski slopes of Courchevel and the mega
yachts of the French Riviera.
Now, months after announcing that they were going their separate ways, the two
billionaires are locked in the biggest divorce in Russian business history.
A settlement should have been complete by January 1, but the deadline has
come and gone without a resolution.
At stake is more than £20 billion in a conglomerate of some 200 firms
employing nearly 150,000 people. Norilsk Nickel, the world’s largest nickel
and palladium miner, is the crown jewel of their Interros group, followed by
Polyus, which sits on the world’s third-largest gold reserves. The future of
Norilsk Nickel alone – the largest employer in the Siberian mining town and
former gulag hub of Norilsk, will effect nearly 500,000 people.
Dubbed the divorce of the century by the Moscow press, the separation is also
a litmus test for Russian business. Born from the ashes of communism and
built on dubious privatisation deals, bitter oligarchic clan battles and in
some cases even organised-crime turf wars, Russia’s biziness
has come a long way in less than two decades.
Its murky world, which until not so long ago was associated primarily with
contract killings, now launches stock-market floats, attracts foreign
investors and runs some of the world’s largest energy groups.
Russia’s fabulously rich tycoons have long proved themselves both aggressive
and talented, and their numbers are growing fast – there are now more dollar
billionaires in Moscow than in New York. But as Potanin and Prokhorov, two
of Russia’s most brilliant business pioneers, part ways, the question is
whether the country’s billionaires are mature enough to divide their
fortunes as successfully as they amassed them.
And crucially, the Moscow business community is asking, will the Kremlin –
which has waged a relentless campaign to bring back under its control some
of Russia’s biggest companies – meddle in the divorce.
“They say the closer a couple were in marriage the harder their divorce,” said
a source close to both men. “The Potanin-Prokhorov partnership was
exceptionally close and successful. It should therefore come as no surprise
that splitting more than $40 billion (£20 billion) accumulated over 15 years
will be far from painless. Some say the whole thing is acrimonious. I would
say it’s emotional. But one thing is for sure: they are no longer friends.”
The two men first talked about splitting the partnership 15 months ago. Both
have conceded that matters were precipitated during last year’s new year
holidays when Prokhorov, 42, a man with a passion for wild partying and
Russia’s most eligible bachelor, was detained by French police in Courchevel
on suspicion of supplying prostitutes for his guests.
The billionaire, who always denied any wrongdoing, was held for four days and
released without charges, but police still consider him a witness in what
they say is a wide-ranging investigation. The notion that Prokhorov would
need to pay for beautiful young women to join him on a lavish skiing holiday
was ridiculed in Moscow.
The Courchevel incident was so widely publicised it was used even in a
fruit-juice television ad parodying Russia’s new rich, in which a fur-clad
tycoon is arrested at a luxury hotel with scantily dressed young women.
Others found the scandal less amusing. During the four days Prokhorov was in
jail, the shares of Norilsk Nickel and Polyus Gold fell sharply and their
market value dropped by £1.5 billion in Norilsk’s case and £400m in
Polyus’s. Prokhorov alone lost some £400m in the stock slide but has since
recouped it.
Friends of the tycoon – who has launched a multi-million-dollar lawsuit
against the French authorities and is pressing for a formal apology – said
the debacle did great damage to his reputation. For his part, Potanin, 47,
who publicly at least, is keen to portray himself as a family man, felt the
separation should be accelerated. Prokhorov agreed.
“We had talked about splitting before, but Courchevel accelerated matters,”
said Prokhorov recently. “We have both grown and have developed different
strategic visions. And when two equal partners have different strategies it
becomes difficult to manage and invest money you own together. The
separation process is not easy. It’s painful not just for the two of us, but
also for everyone around us, but we are getting there.”
There was relief among shareholders, the Russian market and investors when the
two partners announced they had reached an agreement over Norilsk.
At the height of Russia’s controversial privatisation in the mid1990s, Potanin
and Prokhorov had bought from the state a controlling stake in the company
for only £120m. Today Norilsk produces a fifth of the world’s nickel and has
a market value of some £25 billion.
Prokhorov had agreed to step down as its chief executive and sell his 22%
Norilsk stake to Potanin, who also owns 22%. The two were also to split
equally their other assets, which range from Polyus to property developing,
media and banking. In return, Prokhorov was to take full control of the
holding’s energy and hydrogen assets.
By the end of summer, however, Prokhorov appeared to have a change of heart.
First he sought to be reelected to Norilsk’s board and then, according to
reports, proceeded to buy at least 3% of Norilsk on the market, thus gaining
a bigger share than Potanin and, under Russian law, securing a blocking
stake of 25% – a move that made his share more interesting to outside buyers
and which came as a surprise to his former partner.
“Unpredictability is important for a showman, but for a businessman it is
harmful,” said Potanin recently. “We knew from the outset that to divide a
business like Norilsk, which is worth more than $30 billion, would be
difficult, but the problems we encountered are greater than we expected. At
one point we realised that instead of partners we had become competitors.”
Prokhorov then set up Onexim, an £8 billion investment fund that plans to
branch into areas as diverse as hydrogen fuel-cell technology and
nanotechnology. “We have a very ambitious task before us – to build one of
the world’s biggest investment funds,” he said, predicting that the fund
would grow to more than £15 billion in the next three to five years.
By the summer Prokhorov had entered into talks over his Norilsk share with
Oleg Deripaska, Russia’s second-richest man who is close to the Kremlin. The
move led to speculation that, in the long term, the state was interested in
bringing the company back under its control.
In mid-November, Prokhorov gave Potanin first right of refusal on his stake,
offering it for nearly £8 billion, with 45 days to raise the cash.
Potanin approached several lenders but was understood to have received
guarantees only from domestic banks. There was also uncertainty over whether
a deal with Potanin would have the Kremlin’s support. Frustrated, Potanin
had no choice but to pass on his former partner’s offer, paving the way for
a deal with Deripaska’s Rusal, the world’s largest aluminium producer, which
will now own 25% plus one share of Norilsk. Rusal has hinted it wants to
take control of Norilsk and merge the two into a £50 billion giant capable
of challenging the likes of global titans BHP Billiton and Rio Tinto.
In return for his share, Prokhorov is to receive an 11% stake in the enlarged
Rusal and an undisclosed amount in cash as well as board representation.
“Negotiations between Potanin and Prokhorov are pretty tense,” said one of the
players mediating between the two. “Prokhorov is very emotional about the
situation. As far as he is concerned, Potanin is no longer a friend. It’s
only about business now.
“Prokhorov feels he was unfairly treated and forced to resign as chief
executive of Norilsk over the Courchevel debacle, whereas Potanin feels
Prokhorov broke his promise to sell him his share of Norilsk. It’s a bit of
a dogfight. Add in the Kremlin, which does not want an all-out war but could
be eyeing some of the assets, and you get a picture of how complicated
matters have been.”
Even with Norilsk’s fate more or less decided, the duo’s divorce is far from
over. Together the two own another £7 billion of assets in KM-Invest, a fund
that owns shares in a number of businesses, including a further 8% of
Norilsk Nickel.
Prokhorov has proposed either selling the assets and splitting the proceeds,
or buying out Potanin’s share or vice versa. He has said that if Potanin
does not accept he may consider legal proceedings to break up the holding.
The Norilsk shares could be put up for auction next month.
“Both want the divorce to be over as soon as possible,” said a source close to
both men. “It’s bad for business as they can’t really concentrate on the
future until this is settled.”
Friends and former business partners of the two say that in view of how
different they are, their decision to separate is less surprising than the
fact that they have stayed together for so long.
As the son of a senior foreign-trade official, Potanin had a far more
privileged childhood than Prokhorov and most of Russia’s other oligarchs.
After graduating from the prestigious Institute of International Relations,
the training ground for Soviet diplomats, he began an impressive career at
the Ministry of Foreign Trade, rising up the ranks of the former Soviet
Union’s bureaucracy.
His connections among the party elite gave Potanin a head start when he left
the civil service and turned to business just as the Soviet Union collapsed,
setting up Interros, whose starting capital was only $10,000.
Prokhorov’s parents were of a more modest background – his mother was a
scientist, and his father a member of the Soviet Sports Committee. After
graduating in economics from the Moscow Financial Institute and serving a
two-year stint in the army, he worked on the Russian railways and in 1987
set up a business selling stone-washed jeans. Soon, in what was a rare
luxury at the time, he bought his first car, a secondhand Lada, which to
this day remains his most memorable purchase.
He then joined a bank as a clerk and met Potanin, who was recommended to him
to open an account. The two became inseparable business partners and
friends. They opened their own private bank, one of the first in
postcommunist Russia, Prokhorov, then only 28, using his banking experience
and Potanin his contacts in government to win lucrative state accounts.
In their double act, Potanin, who under then president Boris Yeltsin did a
stint as deputy prime minister, always focused more on political lobbying
and ensuring Interros enjoyed good Kremlin connections. Prokhorov, a
brilliant manager, dealt more with the day-to-day running of their companies
– more recently as the chief executive of Norilsk.
The two, who at one point lived next to each other and holidayed together,
could not have more different personalities. Sports fanatic Prokhorov, who
is 6ft 8in, isa competitive kick-boxer, jet-skier and skier. Potanin loves
chess and board games.
Prokhorov said recently: “I am more aggressive and the businesses in which I
want to invest should grow many times in value. I’m ready to take more risks
but because of this the businesses will grow more. Potanin is more
conservative. He likes a more evolutionary business.”
The two have often partied together, but whereas Potanin plays on his image as
a family man, Prokhorov, a diehard bachelor, revels in his image as the host
of Moscow’s wildest and most lavish parties.
Bizarrely, Prokhorov – a self-confessed workaholic who likes to say that if a
businessman knows how much money he has he is not a billionaire – claims not
to own a mobile phone or to use a laptop computer.
“It’s amazing they have been together and been so successful for so long,”
said a former business partner. “Considering the pace of change in Russia
since the collapse of communism, 16 years here is the equivalent of 30 or 40
in the West. The truth is that they have grown in that time, especially
Prokhorov, who now wants to be his own man.
“It’s only natural that they should go their own ways but one thing is for
sure – in this divorce, there won’t be any winners.”
