Russian oil giant sees merger falter

Russian oil firm Sibneft slammed the brakes on a landmark deal to merge with embattled Yukos yesterday, apparently leaving the market and Yukos executives baffled by the latest blow to the company formerly led by jailed tycoon Mikhail Khodorkovsky.

A key Yukos shareholder said the deal to form the world's fourth largest oil producer was only delayed and not dead, but analysts said Sibneft bosses - led by Chelsea football club owner Mr Roman Abramovich - appeared to have bailed out of a union with a company assailed by a fierce legal onslaught in recent months.

"This week Sibneft shareholders told us that they have technical difficulties and asked not to change the board's make-up at today's meeting," major Yukos shareholder Mr Leonid Nevzlin told Russia's Interfax news agency in Israel, where he fled after Mr Khodorkovsky was arrested in October and charged with massive tax evasion and fraud.

"We are not talking about cancelling the deal. Sibneft is still Yukos's subsidiary," Mr Nevzlin said. He was the first Yukos official to offer any explanation for events that caught the market by surprise, after the firm's managers met their Sibneft colleagues to decide on a joint board of directors and elect a chairman of the merged firm.

"The completion of a merger between Yukos and Sibneft is suspended due to a mutual agreement reached between the core shareholders of both companies," Sibneft said in a statement.

But Mr Simon Kukes, who replaced Mr Khodorkovsky as Yukos's chief executive this month, said the decision was nothing to do with him.

"The process of the merger is proceeding," said the Russian-born US citizen. "This news was a surprise for me."

Mr Khodorkovsky, Russia's richest man, was arrested at gunpoint on his private jet on October 25th He joined several other senior Yukos officials in jail, charged with crimes ranging from embezzlement to murder.

Supporters of Mr Khodorkovsky say he is being victimised by the Kremlin for funding opposition parties and hinting at personal political ambitions.

The two oil firms announced their merger in April, when Yukos said it would acquire Sibneft in a friendly takeover for $3 billion in cash and a share swap.

Yukos's chief operating officer, Mr Stephen Theede, said it was unclear if Yukos could return the Sibneft shares it already holds and recover the cash it has paid for them.

Analysts said Mr Abramovich used the money he received from the deal to fund his purchase of Chelsea and a host of star players for the club.

"[Mr Abramovich] may have decided he is better off selling Sibneft directly to a foreigner in six to 12 months after a period of stability and a further year's growth," said Mr Stephen O'Sullivan, joint head of research at Moscow's United Financial Group bank.