September 5, 2008

BP and Russian Oligarchs Agree Peace Deal Over Battle for TNK-BP

By Sarah Arnott

BP and the Russian billionaires fighting for control of the TNK- BP joint venture have signed a deal designed to draw a line under their acrimonious conflict.

After more than a year at daggers drawn, the two parties have put together a truce that provides for the board to be reshuffled, for equal control of all subsidiaries, and for the departure of the controversial TNK-BP chief executive Robert Dudley.

Both sides were keen to make positive noises yesterday. Tony Hayward, the BP chief executive, said: "The agreement is a sensible means of resolving a situation that could not continue without causing serious damage to what has been an immensely successful joint venture for all concerned."

Viktor Vekselberg, one of the three oligarchs whose Alfa-Access- Renova (AAR) investment vehicle owns 50 per cent of the company, said: "These agreements are a good outcome of difficult negotiations. Emotions were not allowed to prevail over common sense and both sides found the solution that best meets the interests of TNK-BP."

Under the terms of the agreement, two of the existing 10-strong TNK-BP board will step down - one of the BP-nominated directors, one from AAR - to be replaced by three independents, from a slate of 10 candidates to be produced by a headhunter.

Mr Dudley, who is already working from a secret location after being forced out of Russia by intractable visa issues, will step down by the end of the year to be replaced by someone nominated by BP but accepted unanimously by the expanded board. Mr Dudley will be offered another senior role at BP.

The new boss of TNK-BP, who must have strong Russian experience and language skills, will appoint a new executive team. Notably, he will have discretion over the number of BP secondees and the initiation of international projects, both of which have been flashpoints between BP and AAR.

Once the new management team is in place, an initial public offering of up to 20 per cent of the combined holdings will then be considered, subject to Russian regulatory approval.

The bones of the deal signed this week were agreed at a meeting between Mr Hayward and Mikhail Fridman, one of the oligarchs, in Prague at the end of July. More detailed negotiations were then conducted by Lamar McKay, a senior BP troubleshooter, and Alexander Knaster, who is on the board of directors at Mr Fridman's Alfa- Bank.

Until now, agreement has been elusive. AAR accused BP of running the company like a subsidiary, stuffing it with BP secondees and turning down valuable foreign expansion opportunities. The Russian investors were particularly insistent about the removal of Mr Dudley and threatened a series of lawsuits both within Russia and outside it. BP was equally outspoken, claiming Mr Dudley was subject to a harassment campaign including accusations of labour law violations and industrial espionage. Peter Sutherland, the chairman, told a conference audience in Stockholm in June that AAR was little better than a corporate raider.

In the aftermath of the battle, it is unclear who has won. BP has capitulated to all the demands that it had been resisting. But it had its share price, off by some 18 per cent since January, to consider and predictions that it would ultimately be forced out altogether were becoming more insistent.

"Today's agreement is a better outcome for BP than the market had anticipated," Richard Griffiths, at Evolution Securities, said. "The group's restructuring programme should be delivering financial performance around now, but it has been completely overshadowed by TNK-BP. Getting rid of that issue will mean the market can concentrate on the business itself."


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