Magnitogorsk Metal Combine, Russia's second largest steelmaker, appears to have staved off a hostile takeover attempt by Iskander Makhmudov and his Urals Mining and Metallurgical Co.

A Magnitogorsk official said they have closed the list of shareholders authorized to vote at the May 18 annual meeting. According to spokesman Alexander Proskurov: "No significant changes have occurred compared to last year. All large blocs of shares have remained in the same hands, despite the efforts of companies close to Makhmudov to buy into Magnitogorsk."

As of last week, the main shareholdings at Magnitogorsk are: A-Capital, a management-linked company, 29.73 percent; the State Property Ministry, 23.76 percent; MEKOM, 23.49 percent; Fullwell Investment Ltd., 13.59 percent; RFC, 2.56 percent, and Omega-99, 2.05 percent. Fullwell used to be connected to the London-based Trans World group, and may now be linked to Vladimir Lisin, chairman of the board at Novolipetsk, Magnitogorsk's domestic rival.

According to Proskurov, it is likely that a vote by shareholders next month will leave the composition of the board of directors "more or less the same as was elected last year." The 10-member board has seven representatives of the management, one from the region and two from the federal government.

Proskurov said: "The major shareholders are likely to vote in the interests of the management of the company, including Fullwell Investment Ltd., which has always voted in favor of the management of Magnitogorsk."

Shares claimed by A-Capital have been the subject of a court dispute, but according to Proskurov, their voting rights are so far unaffected.

President Vladimir Putin has already said that no changes in ownership of the state stake held by the State Property Ministry are being planned, leaving this to continue as federal property.

Proskurov says that Makhmudov's companies are limited to having to buy shares from steelworkers and others who are shareholders of Magnitogorsk, but they comprise just 5 percent of the share float. Workers of the company are exceptionally loyal, and unlikely to sell. MEKOM is also reported to be seeking proxies from the small holders to support the management.

According to Proskurov, the steelmaker has good connections with the authorities of Chelyabinsk region and nearby Bashkortostan, as well as the Putin appointee for the area, Pyotr Latyshev.

Proskurov said that Latyshev's involvement was "crucial at the time Magnitogorsk was under pressure of coking coal suppliers controlled by companies close to Makhmudov. It was Latyshev's pressure that enabled Magnitogorsk to normalize coal supplies."

At the moment, the steelmaker is considering its options for assuring coal supplies independently of Makhmudov's group, and greater protection for hostile takeovers through share acquisitions.

Proskurov said also that the Kremlin may be a white knight in a plan to create an offshore export outlet for the company's steel, in which the state would be the principal shareholder. According to the spokesman, "this is just one proposal among many, and the decision is not yet made."

Proskurov also said that Magnitogorsk is now working on the establishment of a holding structure to include raw-materials producers and end-users of Magnitogorsk's metal. The company is cautious about this option, because it lost 30 percent of its shares to a similar scheme, run by Magnitogorskaya Stal, headed by Rashit Sharipov. After complex legal maneuvers, Sharipov's shares were turned over to A-Capital.