RUSAL continues verbal assault on Norilsk Nickel Board

MOSCOW (Reuters) - An ownership conflict at Norilsk Nickel will damage the world's largest nickel miner in the short and medium term, the CEO of one-quarter shareholder United Company RUSAL said on Friday. Norilsk's board, controlled by Chairman Vladimir Potanin, who owns about 30 percent of the company, elected former KGB official Vladimir Strzhalkovsky as chief executive. UC RUSAL, which owns 25 percent plus two shares, cried foul. The shareholder conflict at Norilsk has become the second large-scale corporate war in a Russian company after a conflict between Soviet-born billionaires and British oil major BP Plc over oil firm TNK-BP, where both parties hold 50 percent. "It is difficult to talk about parallels between Norilsk and TNK BP," RUSAL Chief Executive Alexander Bulygin told reporters. TNK-BP CEO Robert Dudley, backed by BP, left the country and its chief financial officer resigned. "But I agree with you that a conflict of such nature is destroying the company in the short and medium term," Bulygin said. "However, if we defend our position, in the longer term, two years or more, it will be beneficial for the company and its shareholders." The new corporate war is developing as Russian stocks and the rouble fall on a stream of bad news which has sapped investor appetite for Russian stocks. Shares in Norilsk have declined nearly 40 percent from a mid-May peak, also weakened by falling nickel prices. COOPERATION WITH THE STATE Strzhalkovsky was proposed by Potanin's Interros group. He will replace CEO Sergei Batekhin, who has been in the job for only two weeks after replacing Denis Morozov following a board reshuffle in July. Strzhalkovsky is seen by analysts as an ally of Prime Minister Vladimir Putin, who may help Potanin strengthen his grip over the miner. He most recently served as head of state tourism agency Rosturism. "Norilsk Nickel is a company which consolidates the industry. Our consolidation effort will require cooperation with the state," Potanin told reporters after the board meeting. Potanin was not available later for comments on RUSAL's statement. Speaking to reporters after Potanin, Strzhalkovsky said he had discussed public-private partnership projects with the government but ruled out the state taking a stake in Norilsk. The government often acts as an arbiter in corporate conflicts. THIRD PARTY Potanin said he saw a diversification of Norilsk into iron ore, coal and uranium mining. He said the company was open for mergers on condition that 50 percent of the company's share capital remained in Russian hands. Potanin also said Norilsk will not bid alone for the Udokan field, estimated to contain at least 14.43 million tonnes of extractable copper metal, at a tender on Sept. 17. Several big Russian firms, including Norilsk, have submitted their bids. Bulygin said Norilsk had all the necessary expertise to develop Udokan and said UC RUSAL voted for the unilateral bid by Norilsk at the shareholder's meeting, but was outvoted by Potanin and other minorities loyal to him. RUSAL's majority owner, billionaire Oleg Deripaska, on Thursday accused Potanin of seizing control of the company and threatened legal action. Bulygin said Potanin violated basic rules of corporate governance. Bulygin also said Potanin's managers were responsible for Norilsk's falling share price and metals output within Russia -- the company's total nickel output has risen following overseas acquisitions. UC RUSAL has three seats on the nine-strong Norilsk board. Potanin, the board chairman, has another three. Three other seats are held by formally independent directors. UC RUSAL believes that at least one of the three is a Potanin ally. UC RUSAL has said it might seek an extraordinary shareholders' meeting to elect a 13-member board in order to increase the number of independent directors. (Editing by Braden Reddall)