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Last Updated: Friday, 28 November, 2003, 21:01 GMT
Yukos-Sibneft merger called off
Sibneft petrol station
Sibneft's motives are still unclear
Russian oil firm Sibneft has said it is temporarily suspending its $11bn merger with embattled rival Yukos.

The news, which came on the day that board members were to be chosen for the merged firms, caused an instant 7% plunge in Yukos's share price.

It is the latest blow for the firm, whose main shareholder, Mikhail Khodorkovsky, is in prison on charges of fraud and tax evasion.

It is still unclear whether the two firms intend the merger to go ahead.

No comment

Yukos chief executive Simon Kukes insisted that work on combining the two firms was continuing, and said the firm would respond formally by the end of Friday.

But later in the evening company spokesman Alexander Shadrin said there would be no further comments.

Meanwhile exiled Russian tycoon and former Sibneft shareholder Boris Berezovsky told Reuters agency he believed that the Sibneft core shareholders had wanted to take the reins at the combined group after the Khodorkovsky crisis.

"The breaking point came when Yukos was not ready to hand over management of the company," he said in London.

Yukos has already purchased 92% of Sibneft.

Speculation starts

Given the level of speculation surrounding the fate of Yukos, many analysts are likely to suspect the influence of politics behind the scenes.

Mikhail Khodorkovsky
Mr Khodorkovsky no longer runs Yukos
Mr Khodorkovsky no longer runs Yukos, but remains its chief shareholder in the face of apparent government opposition.

Many observers will assume that the Kremlin has scuppered the merger in order to punish Yukos; others may simply reason that Sibneft did not want to become associated with such a risky partner.

Sibneft is part-owned by football-loving tycoon Roman Abramovich, who has been progressively selling his Russian assets this year.

Ups and downs

The likeliest explanation now is that Mr Abramovich wants to renegotiate the merger deal, something in theory no longer allowed at this late stage.

According to the terms of the agreement, a party would have to pay $1bn if it pulled out of the merger.

Even if the deal does still go ahead, the move is seen as very bad news for Yukos, which is hoping to put this year's troubles in the past.

And if the merger falls apart completely, it could open the way for Western companies to move into the market, possibly by taking over one of the firms.

After hesitating for many years, international oil companies such as BP and ExxonMobil are now keen to increase their presence in Russia.

A merger between Yukos and Sibneft, which would create a monolithic Russian-owned firm, was seen as a potential barrier to foreign involvement in the sector.

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