Updated June 24, 2008

   Mechel forwarded a voluntarily offer for minority stockholders of its three subsidiaries – Southern Kuzbass Coal Company OAO, Korshunov Mining Plant OAO and Southern Urals Nickel Plant OAO. In the company do not expose the volume of the possible bonus at buyout, and a source aware of transaction asserts the company is ready to pay around 10% more. According to experts’ calculations, Mechel can spend around $300 million for buyout and that allows it to consolidate 100% subsidiaries’ stocks forwarded to Mechel Mining Company that prepares to IPO on London Stock Exchange (LSE).

   On June, 20 current year Mechel Company declared it had forwarded an offer for minority stockholders of its subsidiaries – Southern Kuzbass OAO, Korshunov Mining Plant OAO and Southern Urals Nickel Plant OAO. This offer is not a requirement of compulsory stocks buyout, as Mechel does not have 95% stocks in all companies. According to the official data, Mechel stake in Korshunov Mining Plant is 85,06%, in Southern Kuzbass – 93%, in Southern Urals Nickel Plant – 79,9%. The offer is good for the month, and the determined buyout price is already indicated. As reported in Mechel, a decision about stocks purchase would be taken individually, depending on stock interest growth as well. Private investors mainly are among the minority stockholders of Mechel subsidiaries. Large institution investors – Prosperity Capital Management (owned a bit more than 1%) and Vostok Nafta investment funds – have already sold their interest to the market, as informed funds managing directors Ivan Mazalov and Sergey Glazer.

   Uralsib Bank analyst Kirill Chuyko considers that Mechel aim is consolidation of 100% subsidiaries stocks in the run-up to Mechel Mining Company IPO (it owns stock interests of Southern Kuzbass, Korshunov Mining Plant, Yakutugol OJSC and Pugachev lime pit that have earlier belonged to Mechel). "A voluntarily offer is the first step towards further compulsory buyout", as he says. By law a parent company can declare a compulsory offer after it attains a 95% stocks stake. According to calculations of Troika Dialog analyst Sergey Donskij, a fair price of such interest in three companies’ capital totals around $260 million, but Mechel can pay around $300 million taking into account a possible bonus. A source aware of transaction details says that bonus at buyout is within 10% limits. Las year Lukoil Company has successfully bought stocks out of all Lukoil-Nizhegorodnefteorgsintez minority stockholders with the analogical bonus (7% to the market value). UBS analyst Denis Yevstratenko says that these expenditures are not heavy for Mechel. "According to our calculations, the company EBITDA totals $3,7 billion in 2008", he marks.

   Kirill Chuyko considers that it is favorable for Mechel not to pinch pennies to the offer and buy minority stockholders’ stocks out with a bonus. Minority stockholders’ presence in subsidiaries is inconvenient from technical point of view. "In reporting net income reduces to minority stockholders’ stake", he says. Denis Yevstratenko adds that minority stockholders’ absence at Mechel Mining in the run-up to IPO withdraws the range of potential issues from investors’ part. "For instance, Mechel may not need to explain, why Mechel Mining subsidiaries are listed with a discount", he says. Denis Yevstratenko considers that it would be favorable for minority stockholders to sell stocks with 10-15% bonus to the market price.