MOSCOW, April 22 (Reuters) - Russian oil major YUKOS said on Tuesday it would buy its smaller rival Sibneft in a deal creating the world's fourth largest oil firm which may head off a possible foreign bid.
The merger of Russia's second and fifth biggest oil firms will be the largest in Russian corporate history and is valued by some analysts at around $12 billion. The transaction includes $3 billion in cash plus a complex equity swap.
The merged company, to be called YukosSibneft, will have a combined market value of some $35 billion, making it by far the largest company on Russia's stock exchange.
A joint statement issued by the two firms on Tuesday said the newly formed YukosSibneft would have YUKOS head Mikhail Khodorkovsky as chief executive and Sibneft head Eugene Shvidler as chairman.
The merger comes only months after international oil major BP acquired a 50 percent stake in the nation's third largest oil firm, the Tyumen Oil Co (TNK) for $6.75 billion.
By swallowing Sibneft, YUKOS appears to have thwarted the ambitions of world's majors such as Royal Dutch Shell, ExxonMobil or TotalFinaElf, which were rumoured to be looking at matching BP's acquisition.
The enlarged firm would also be in a stronger position to fulfil Khodorkovsky's ambition to become a force to be reckoned with in the global oil business.
"It (the merger) creates a very large scale business in Russia, which will have to seek opportunities for growth in either new areas in Russia... or internationally," said Adam Landes, oil and gas analyst at Renaissance Capital in Moscow.
"It's a monster company that global majors will look at with more respect."
The two companies said they plan to complete the merger by the end of the year. Shares of both YUKOS and Sibneft, which shot up in recent weeks as market rumours swirled, jumped about two percent after the announcement but later pared their gains. YUKOS ended up 1.18 percent at $11.18, while Sibneft rose 1.27 percent to close at $2.40.
OUTPUT TO RIVAL KUWAIT
The statement said the group would have oil and gas reserves of 19.4 billion barrels -- greater than in the North Sea, which separates Britain and Norway, or Alaska's Prudhoe Bay.
The firm will have the third largest oil and gas reserves among private firms, behind Exxon and Shell but ahead of BP.
It will produce 2.3 million barrels per day of crude oil, putting it on a par with OPEC member Kuwait and giving it 29 percent of Russia's crude oil production.
The statement said only BP, Exxon and Shell produced more oil among the world's privately owned majors, while U.S. giant ChevronTexaco and TotalFinaElf were behind.
Measured by oil and gas output, YukosSibneft will rank sixth in the world after Exxon, Shell, BP, Chevron and Total.
Industry and banking sources told Reuters last Friday that the two companies were poised to announce a merger that would dislodge LUKOIL from its number one position in the Russian market and challenge some of the world's top oil companies.
Sibneft's first vice-president Alexander Korsik told reporters on Tuesday the combined firm planned to maintain double-digit percentage growth in oil production for a few more years, a move helping Russia take market share from other producers including OPEC.
CORE SHAREHOLDERS
In the complex deal, Sibneft shareholders will sell 20 percent of their shares to YUKOS for $3 billion in cash, with the rest of the firm's shares to be swapped at a ratio of 0.36125 percent of the new combined firm for every one percent of Sibneft stock.
A group of core shareholders in Sibneft, led by Roman Abramovich -- powerful governor of Russia's remote eastern region of Chukotka -- would end up with a blocking 26 percent stake in the new firm, while Sibneft's minority shareholders would get around three percent in YukosSibneft.
Sources close to the deal said YUKOS will increase its charter capital by 26 percent through a new share issue to open the way for the merger.
After the share issue and merger, YUKOS's core shareholders, including Khodorkovsky, will hold 71 percent of the combined group, together with minority shareholders.
YUKOS officials declined to say the exact stake its core shareholders would hold in the new firm.
YukosSibneft said it promised to make a "fair offer" to Sibneft's minority shareholders and would take advice on the issue from an "internationally recognised" investment bank.
GOVERNMENT PRAISE
Russia's Prime Minister Mikhail Kasyanov praised the deal, which has yet to be approved by the Antitrust Ministry, saying it would help Russian business strengthen its standing abroad.
Market analysts were generally positive about the pricing of the deal. Before the merger YUKOS had said it wanted to list on the New York Stock Exchange in the next year.
"The concern has been that YUKOS would not offer as much as the market was asking, but in fact they have offered a premium," said Stephen O'Sullivan, Head of Research at Moscow-based United Financial Group.
The two companies made an earlier abortive attempt to merge in early 1998 but abandoned their efforts after several months of wrangling.
The statement also said YUKOS was considering making dividend payments to shareholders and buying back shares, a move that would increase indebtedness.
"Prior to completing the transaction, YUKOS intends to increase its leverage and is considering among other things, cash distributions to its shareholders in the form of dividends and share buybacks," the statement said.
The combined company would have a "moderate level" of debt and strong working capital, the statement added.
The merged company will operate 2,500 filling stations and 10 refineries in Russia, Lithuania and Belarus. (Additional reporting by Julie Tolkacheva and Oliver Bullough)
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