Bumi update – the market continues to leave the sweetie jar open

Interesting RNS this morning that NR Investments (Nathan Rothschild) has presented a letter to the board with an alternative investment proposal to the Bakrie family’s current Long Haul offer:-

“NR Investments Letter   

Bumi plc (“Bumi”) announces that it has received a letter from NR Investments

proposing an alternative to the Long Haul proposal published on October 11,

2012.

As previously announced, the Board appointed Rothschild Group to evaluate the

Long Haul proposal, which was received on October 11, 2012. The NR Investments’

alternative will also be evaluated by Rothschild Group and considered by the

Bumi independent non-executive directors. 

The Board will in any event not make any recommendations regarding any possible

transaction until the investigation announced by Bumi on 24 September 2012 is

appropriately advanced.”

It seems Natty is serious and does have the backing for the counter proposal. But of course, with Bumi Plc holding 85% in Berau Coal, this gives him/Bumi the upper hand in relation to this particular portion of the unwind.

Happier times between Natty and the Bakries!

The Bakries have offered to buy the 85% stake in Berau Coal back for $947m. Now, looking at the financials behind this transaction, should the Board recommend the sale of the remaining 29% in PT Bumi for a net cash receipt of $278m this will largely wipe out the debt of Bumi Plc (currently $378m) give or take $100m and so leave Bumi Plc holding Berau Coal that the Bakrie family value at approx $1.1bn – around £687m at the current FX rate and so around 323p per share. Take off the remaining debt in Bumi Plc of @ 36p per share and the current net value to shareholders is 350p per share. However, as Bumi Plc will effectively hold in treasury the circa 43m shares that they will receive back from the Bakries then the value per share of Bumi is around 390p in the current transaction.

Natty of course needs to only to counter the offer for Berau Coal to buy out the remainin 15% by way of a tender offer in order to force the Bakries hand on this element of the deal. And so, any additional 15-20% premium has a more disproportionate impact to Bumi shareholders in terms of value than the Bakries. Simply, for every 10% improvement in the Berau offer this equates to 32p per share increase in value in Bumi Plc or 43p assuming the first stage of the deal goes through and the number of shares outstanding in Bumi Plc effectively reduces to 137m from the current 180m.

I’m guessing that Nat is trying to line up a placing of shares to raise around $200m – $250m to purchase the remaining 15% of Berau from the Bakries. For any participant at this level then the deal looks to offer around a 70% immediate upside if the value of Berau is maintained. Recall also that when Samin Tan invested (an Indonesian national and insider) that he paid aroudn £11 per share – this was 12 months ago and so he believed value was towards this level as opposed to the current woeful price).

We raised our price target of Friday from 300p to 400p. This looks to be one of the best “event plays” in the market today to us with the downside much less than the upside. The chart structure below and as posited by our fellowm blogger Zak Mir this weekend also looks extremely positive with a potential reverse Head & Shoulders formation and a flag break to the upside imminent.

We are heartened to see Natty not abandoning the stock and we continue to buy Bumi shares.