Nathaniel Rothschild /Getty
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It seems peace is finally breaking out among the warring shareholder factions at Bumi plc (BUMIP.L) (BUMI:London), soon to be renamed Asia Resource Minerals plc. Nathaniel Rothschild, who has been leading the governance charge there, and the troubled mining company have now come to terms that will allow everybody to move forward.
London listed company Bumi plc is presently comprised of interests in two large mining companies in Indonesia, one being a 29.2% holding in Bumi Resources and, as well, the company owns 84.7% of Berau Coal Energy.
On December 17th, the company will now hold a much anticipated, and sometimes delayed, special general meeting of shareholders in London to approve a businesslike, at least, if perhaps not quite yet amicable, break up between some of the shareholder groups and to bless a new marriage, albeit likely one of convenience more than of desire, between those who will be left in the room.
First, the Bakrie family of Indonesia will pay US$501 million to take the interest in Bumi Resources off the company’s hands, and in return will tender their own 23.8% share position in Bumi plc to its current Chairman, Samin Tan, for US$223 million, who is taking on a loan from Austria’s Raiffeisen Bank to pay for it. This will give Mr. Tan’s companies a 47.6% control position in Bumi plc, exactly double what it was before. The difference of US$278 million the Bakries will have to come up with themselves.
Mr. Tan will also get a big chunk, almost half, of a substantial US$400 million dividend that will be declared shortly after the sale to the Bakries, so he will actually then be made nearly whole again quite quickly and can then pay back most of his bank loan.
The two deals are “inter-conditional”, which is a delightful phrase which means just they both have to happen at once for either to be effective. They also require approval of the majority of Bumi plc’s independent shareholdings, i.e. those not involved in the deal, in order to happen at all.
Majority independent shareholder approval is also needed to override provisions of Rule 9 of the City Take Over Code, known as the “Whitewash”, which otherwise requires a follow up offer to all shareholders when any group goes over a 30% holding position, as Mr. Tan will now indeed be doing, acting through his two companies the Borneo Group and RACL.
Finally, Mr. Tan has promised, should the deal go ahead, to resign at an early opportunity as Company Chairman and to support his replacement by an independent outside party, essentially with the person chosen being someone completely acceptable to the City.
All of these dramas have taken place against weak economic growth in China, Bumi plc’s main market, falling coal prices and a share price that has dropped to about a quarter of the price set at its IPO three years ago. At that time the company burst onto the scene in a spirit of optimism, and apparent harmony, amongst its then new partners.
With the stage set for the special general meeting now to take place on Tuesday therefore, all eyes have turned again to Mr. Nathaniel Rothschild. It was he who put the Bumi plc group together in the first place, took the company public in London and for a time sat on the board himself until he resigned over what he stated were massive governance irregularities at the time – and some of which it seems still remain unresolved.
With his own personal 21% holding in Bumi plc, Nathaniel Rothschild is pretty close to being in a position to block majority independent shareholder approval of the transaction if, as perhaps could well be expected, just a few institutional shareholders chose to go along with him in continued opposition.
The question for him therefore has been whether to support a moderately bad deal, one which hands control over to the Samin Tan interests with no premium for control to the other shareholders.
Moreover, neither the management or the current inside control group of Bumi plc has yet succeeded in clawing back any of the US$173 million that mysteriously had disappeared from subsidiary Berau Coal Energy in 2012. It seems the funds vanished without any stated business purpose, and apparently on the watch of another Indonesian businessman, Mr. Rosan Roeslani.
This issue therefore presently remains as an outstanding dispute, one that has now been sent to arbitration according to the company, after Mr. Roeslani seems to have reneged on previous promises to arrange for recovery of the moneys. For reasons that continue to be opaque no claims of personal wrongdoing have been either alleged or admitted. However the money itself has so far certainly not been recovered.
On the plus side for Mr. Rothschild at least it may make sense to bring the shareholder war to a conclusion at this time, having at least managed to dislodge the Bakries from the equation.
Separately of course, and which he can do nothing about, it is apparently still likely that as an important Indonesian business family in the region the Bakrie family has been, and likely may remain, close to the Samin Tan family interests outside of Bumi plc.
The long and the short of it, though, is that Nathaniel Rothschild has now come to a pragmatic decision, and made an agreement with Bumi plc to support the separation transaction with the Bakries and also to support the purchase of their shares by Chairman Samin Tan, thus avoiding any follow up offer requirement that was one of Mr. Tan’s own conditions.
Accordingly, on Friday Bumi plc announced it has negotiated a “Relationship Agreement” with Mr. Rothschild which, in return for his support, will allow him to nominate his own independent Director to the Board of Directors of the company as long as he holds at least 15% of the voting shares.
Since this matter will also require subsequent shareholder approval as well, Bumi plc stated in its announcement that it understands that separately Mr. Rothschild has secured the agreement of Mr. Tan to vote his 47.6% interests in favour of it when it comes to a vote.
Nick von Schirnding, Bumi plc’s Chief Executive, commented: “I am very pleased that Nat Rothschild, a founder shareholder, has chosen to support the separation. Nat is a major investor in the Company and we look forward to working with his nominated independent director. This agreement will help us to deliver a value-accretive transaction, which is in the best interests of all shareholders. We all accept that a strong independent board is the best way to deliver shareholder value.”
Mr Rothschild said, “My first priority, as before, will be to protect the interests of Bumi PLC’s independent shareholders. With that in mind, the best way I can currently influence the Company is to nominate a director to what will be an independent board dedicated to realising value. I have had full, constructive discussions with Samin Tan and Nick von Schirnding and we are united on the need to deliver value for all.”
Burying the hatchet has clearly become the preferred outcome that does the least damage to all involved at this point. So as long as the Bakries actually come up with the balance of the money they need to buy Bumi Resources the company can hopefully now move forward, rebuild its business and restore its share price. Yet it undoubtedly leaves a bitter taste, not least because of the continuing apparent unresolved issue of possibly misappropriated funds, which manages to leave egg on everybody’s face.