Russia’s AAR seeks disengagement from BP over TNK-BP

May 31, 2012 | Eastern Europe & Russia, Legal, Management

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The Russian shareholders of TNK-BP have offered to buy out their joint venture partner BP or convert the stake into BP shares.

Leading AAR shareholder Mikhail Fridman, who resigned as TNK-BP chief executive earlier this week, said disengagement is needed because the partnership, set up in 2003, has exhausted itself and no longer serves the interests of either party.

Fridman maintains that many options remain open. BP could become a minority shareholder and gradually sell its TNK-BP stake, according to Fridman. Or TNK-BP could consider cutting its stake and convert part of it into BP shares.

The process of changing TNK-BP’s ownership structure could take as long as 5-7 years, Fridman said. BP said it is ready to discuss AAR’s offers directly.

But it appears that neither of the two options looks particularly attractive for BP. It seems unlikely that the company would sell its stake in a successful investment or convert even part of the holding to BP shares. A conversion could make AAR the largest shareholder in BP, which is unlikely to welcome such a prospect.

BP’s biggest shareholder is UK investment company Blackrock, which holds a 5.36pc stake. If AAR’s stake was converted to BP shares, TNK-BP would end up fully controlled by a European firm, something that the Russian authorities would not allow. But the prospects of either of the two options become more likely if Russia’s state-controlled Rosneft is offered a role in a future combination.

AAR is determined to seek compensation from BP for last year’s failed strategic alliance deal with Rosneft, which, according to the Russian shareholders, violated TNK-BP’s shareholder agreement, Fridman said. Arbitration proceedings to determine whether BP’s failed attempt to form the deal with Rosneft violated TNK-BP’s shareholder agreement continue, with further hearings expected in the fourth quarter.

BP and AAR this week blamed each other for the breakdown of corporate governance at TNK-BP. The joint venture’s board has not had a quorum since December. BP has nominated Evert Henkes, oil and chemical industries veteran and a former Shell executive, for the board, leaving one more independent director needed to restore parity. TNK-BP expects to have a full board by the end of June, chief financial officer Jonathan Muir said earlier this month.

Last week’s board meeting, scheduled to vote on the dividends for the first quarter, was cancelled. BP wanted the board to convene despite lacking a quorum, even though some issues such as dividends need unanimous approval. But AAR directors refused to meet.