Watch my hands very carefully. In one hand, I'm holding an oil company -- Yuganskneftegaz, or YNG. In the other, I'm holding a "get out of court free" card. Now I hide my hands behind the Kremlin. Now I bring them out again. Quick: Which hand holds the oil company?
The right hand? Um. Hold on a sec. Now I put my hands back behind the Kremlin. Now I bring them out again. Now, which hand is the oil company in? The right hand again? Dang. Thought you might've stopped looking there. Oh all right, go ahead and look in the right hand, as I slyly place the other in your pocket and extract your wallet.
Investors in Russia this week can be forgiven for thinking they're playing against the house in a rigged game of chance. Because they are. And it is. The Russian government's original plan for YUKOS (OTC BB: YUKOY) was pretty simple. Tax the company until it collapses. Pick up the pieces (YNG being the biggest piece). Stick 'em back together. Call it your own.
When YUKOS fought back, though, and in a Houston, Texas, bankruptcy court of all places, the game changed from a straightforward confiscation of private property to something a bit more convoluted. The U.S. bankruptcy court barred Gazprom (OTC BB: OGZPF), Russia's preferred inheritor of YNG, from participating in last Sunday's auction. Gazprom's financiers, including international banks J.P.Morgan Chase (NYSE:JPM), ABN AMRO (NYSE:ABN), and Deutsche Bank (NYSE:DB), got spooked and refused to back Gazprom's bid. So Russia had to quick-like-a-bunny find another buyer -- one not mentioned in the court's injunction.
Enter shell company BaikalFinansGroup (BFG). With everyone focusing so intently on Gazprom, Russia started up a high stakes game of "find the oil company," selling YNG to BFG instead. Since this unknown shell company hadn't been barred by the injunction, technically, it was allowed to bid. Now, YUKOS has to ask the court to clarify its original ruling as barring anyone -- Gazprom, BFG, Oligarchs "R" Us, whomever -- from taking possession of YNG.
YUKOS had better work quick, though. Already, Russia's state-owned oil company, Rosneft, has up and bought BFG, and with it, its newest prize possession: YNG. And in an upcoming switcheroo, Rosneft is itself set to merge with Gazprom any day now.
Before you know it, Gazprom will have acquired at least indirect control over YNG through a string of three or four intermediate transactions. Depending on how it structures the next few steps, it may even technically be able to do so without ever violating the court's order.
But no matter how many times YNG changes hands, know this: Both hands belong to the Kremlin's body. And that, dear Fools, is who ultimately controls YNG today.
Read all about YUKOS' tribulations in:
- Deconstructing YUKOS
- YUKOS Cored
- YUKOS' Hollow Victory
- Coming to America (to Die)
- YUKOS' American Brain Drain
- Death and Taxes in Russia
- Russia Names Its Price
- ConocoPhillips Looks East
- YUKOS: From Dismal to Worse
- Russian Market in Gulag
- YUKOS' Slippery Situation
Fool contributor Rich Smith has no position in any company mentioned in this article.
