Severely weakened by the economic crisis, Russia's top metals producers are embracing a proposal to merge into one massive company. The merger, which is subject to state approval, would make the industry less vulnerable to the rapid shifts in demand that characterize economic downturn. But while the metals giants agree on the basic plan, they differ about how much government support is needed.

Alisher Usmanov, CEO of iron ore and steel producer Metalloinvest, believes the company should be a quasi-state holding. According to U.S.-based think tank Global Insight, Usmanov's proposal would merge his own company with Norilsk Nickel, the world's largest nickel producer, while converting both companies' debt into government-owned shares. The Russian government would become the largest shareholder in this scenario, owning approximately 30% of the new company and pushing some private shareholders out of the boardroom.

The second proposal, brought forward by Norilsk Nickel owners Vladimir Potanin and Oleg Deripaska, calls for a more weighted merger program. Under their plan, the merger would incorporate Norilsk Nickel, Metalloinvest, steel producer Evraz Group (owned by Roman Abramovich and Alexander Abramov) and steel and coal producer Mechel OAO (owned by Igor Zuzin). The government's shares would not exceed 25%, keeping the new company mostly private and free from direct management by the state.

Prime Minister Vladimir Putin signaled his support for the Potanin/Deripaska proposal in his opening remarks at the Davos Economic Forum last week, saying that any direct government involvement in the economy must be handled with caution.

Metals and mining is Russia's largest private industry and an indicator for the rest of the economy. Analysts and Western shareholders are closely following the merger's progress. John Foley, metals analyst for the RUXX Index, says Mr. Putin's remarks put investors' minds at ease:

"Russia's metals industry obviously requires government assistance, but the less direct control is exercised by the state, the more effective the newly formed company will be. Western investors are relieved that the Russian prime minister supports this argument."