Rusal to become no. 1 aluminum maker

The announcement Monday by Rusal, which is controlled by Russian billionaire Oleg Deripaska, underscores the rise of Russia's commodities-based industries against a backdrop of rising prices.

Under the terms of the agreement, privately held Rusal will issue new shares to acquire rival aluminum producer Sual as well as the Jamaican, Irish and Italian alumina assets of Swiss-based commodities trader Glencore.

Sual and Glencore will hold 22 percent and 12 percent stakes, respectively, in the new company, Sual chairman Viktor Vekselberg said. The deal requires regulatory approval in Russia and the European Union.

But Vekselberg said he expects the new company to carry out an initial public offering of stock in less than 18 months, most likely in London.

The expanded Rusal will control 12 percent of the world's primary aluminum, producing nearly 4 million tons per year and eclipsing the 3.55 million tons that that Alcoa reported in 2005.

Rusal director Alexander Bulygin estimated the value of the combined company would be $ 25 billion to $ 30 billion and said it expected annual revenue of $ 10 billion.

Under the terms of the agreement, Bulygin will become the new company's chief executive. The company will have an 11-member board including six representatives of Rusal, two from Sual, one from Glencore and two independent directors. It will have 110,000 employees and will operate in 17 countries around the world.

The company said it hoped to secure regulatory approval from Russian authorities and the European Union by April.

"There are number of challenges that lie ahead. The deal has to be approved by the various regulatory bodies and that always takes a bit of time, there are hurdles that you have to get across," said Sual president Brian Gilbertson, a one-time CEO at mining giant BHP Billington who will be board chairman at the new Rusal.

Russian regulatory approval is expected to be a formality - both Deripaska and Vekselberg have meet with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the breakup of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin's.

Analysts have said that the companies in the aluminum deal complement each other: Sual has large holdings of bauxite, aluminum's raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity - the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia's aluminum industry after its breakup in the chaotic privatizations of the 1990s that followed the Soviet Union's collapse.

While the merger involves two privately held Russian companies - unlike the oil and gas industry, where the state still controls the main companies - observers said that it nonetheless is in keeping with Putin's vision for the economy.

"With the extractive industries, the Kremlin clearly favors consolidation and for Russian companies to become bigger global players," said Chris Weafer, chief strategist for Alfa Bank in Moscow. "That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage."

As well as creating a formidable global player the deal realizes a goal of Deripaska, 38, who worked with billionaire Chelsea soccer club owner Roman Abramovich to create Rusal in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for $ 100 million as part of a campaign to bring home Russia's cultural heritage. He made his fortune - $ 10 billion according to Forbes magazine - from Sual and his interest in BP PLC's Russian joint venture TNK-BP, currently Russia's No. 2 oil producer.