Bumi management looks to have delivered a knock out blow to poor ol Natty

9 mins. to read

Below is the full text from this morning’s RNS released by the current Board of Bumi. It is a pretty compelling statement in our opinion and although we believe the Bakries to have been upto all sorts of shady behind the scenes actions that has detrimented Bumi shareholders, the alternate proposal that Nat’s put forward is just not strong enough to prompt us to vote his way. I think Horn-Smith has just check-mated Nat.

Response to statements in Nat Rothschild’s letter to shareholders

The board of Bumi plc (the “Company”) notes the letter to shareholders published by Mr. Rothschild in support of his bid to take control of the Company’s board (the “Board”).

The Board’s clear proposed solution of separating from the Bakrie Group and Bumi Resources and a future strategy focused on Berau have been set out in the circular to shareholders of 28 January 2013. The Board is entirely focused on this solution which will be a major step towards a resolution of the issues.

Mr. Rothschild’s letter includes further misleading statements and he also makes a number of promises, just as he did when he championed the original Vallar/Bumi transaction so enthusiastically. Most importantly, Mr. Rothschild’s strategy appears to have changed entirely. Critically, he is no longer pursuing the value-accretive separation from the Bakrie Group and Bumi Resources.

In response to Mr. Rothschild’s letter, the Board wishes to draw shareholders’ attention to the following points in particular:

Nat Rothschild and his board appear to accept that they cannot deliver, and are no longer planning to execute, the separation from the Bakrie Group and Bumi Resources – a transaction valued at over US$580m to the Company’s shareholders and the only realistic way forward to recover value

— Rather than effecting a separation, Mr. Rothschild wants to try to assert “influence and stewardship” in relation to Bumi Resources. This is naïve in the extreme. The last two years have clearly demonstrated that a 29% shareholder (in particular one with Mr. Rothschild on the board) cannot adequately influence, let alone control, Bumi Resources

Nat Rothschild’s board’s strategy lacks detail and is confused

— Mr. Rothschild makes sweeping statements about maximising value and intending to “take full operational control, repair damage and maximise value at Berau”, but his letter provides no detail or assurance on how he intends to achieve this and states that his proposed board’s review of expansion opportunities will take 12 months

— The core element of Mr. Rothschild’s solution is to parachute into a complicated Indonesian business a foreigner as CEO, who does not speak the language and has no prior experience of Indonesia, to deal with the issues “head on”. This demonstrates that Mr. Rothschild’s proposed board has little understanding of the issues facing the Company and how to manage them

— The current Board is actively addressing the issues and has a clear strategy for value creation at Berau. Furthermore, Eko Budianto is an Indonesian who understands the operating environment in Indonesia and has worked at Berau Coal as operations director over the last two years

— Mr. Rothschild’s proposed board is confused about its overall strategy. Mr. Rothschild says the coal sector will remain the focus of any potential acquisitions for the Company; meanwhile, just two days ago, Wal King, Mr. Rothschild’s proposed chairman, said he will “focus on a diversification strategy in terms of geography and product beyond coal, such as gold”

Nat Rothschild is in denial about the Bakrie Relationship Agreement

— The Bakrie Group has stated clearly that it intends to enforce its rights under the Bakrie Relationship Agreement and there is no doubt that this agreement remains in full force and effect according to the Company’s legal advisers, who alone have access to all the relevant information

— This agreement, which Vallar Advisers LP (“Vallar Advisers”), an entity led by Mr. Rothschild, negotiated, also provides that the Bakries can nominate a majority of the board of directors of Bumi Resources

— Mr. Rothschild is choosing to deny the very significant and costly litigation his board will face if his resolutions are passed, which would commence immediately following the General Meeting

Nat Rothschild makes numerous misleading claims about conflicts of interest; shareholders should instead be concerned with the conflict of interest faced by Mr. Rothschild himself

— As referred to in the Company’s circular to shareholders, there are issues which the Company is investigating concerning the role played by Mr. Rothschild and Vallar Advisers at the time of the Acquisition. It is telling that Mr. Rothschild makes no reference to Vallar Advisers in the list of potential litigation that his new board would pursue

— On the other hand, Nick von Schirnding is an entirely independent CEO, with no affiliation to any shareholder group. Mr. Rothschild’s assertion that he is a nominee and representative of the Bakrie Group is wrong and deliberately misleading. In contrast to Mr. Rothschild and Mr. Gill, Mr. von Schirnding has over 20 years’ experience of working with De Beers and Anglo American plc, which also had to adjust to the requirements of the London market, and has the commercial skills as well as experience in dealing with complex Indonesian stakeholder issues necessary to negotiate a separation from the Bakrie Group and pursue the next phase of the Group’s strategy

— Mr Rothschild has repeatedly accused Mr. von Schirnding of having misled shareholders over his qualifications. This accusation is false. As soon as a question was raised on this matter, the Company issued an announcement clarifying the position. Mr von Schirnding has a BA-LLB law degree from the University of Cape Town and later prosecuted for the South African Defence Force in military law courts in 1986 and 1987. As a management trainee at Anglo American, he was sponsored on an accounting programme with the University of Witwatersrand. Mr von Schirnding was a full time employee of Anglo American whilst completing the accounting training, which involved lectures and examinations. At no time did Mr von Schirnding state that he was a full time student at Witwatersrand University during these studies. Mr Rothschild also states that he has written to the UKLA regarding this issue. The Company has approached the UKLA on this issue and the UKLA did not have cause to take the matter any further. The Company is entirely satisfied with Mr von Schirnding’s academic qualifications. More importantly, the Board has based its decision to appoint Mr von Schirnding as CEO based on his experience and competence

— Mr. Rothschild also claims that the Board has “failed to adhere to the corporate governance standards expected of a UK premium-listed company”. This too is false. The Company is compliant with the UK Corporate Governance Code and all the major proxy advisory agencies came to this conclusion in their analysis of Bumi’s 2012 AGM

— In the Board’s view, Mr. Rothschild’s board will be heavily influenced by Mr. Rothschild. Shareholders should note that Mr. Rothschild assembled the original Vallar Plc board and how Mr. Rothschild has behaved when those directors have exercised their duties and acted in a way he does not support

Nat Rothschild’s continued references to the Bakrie Concert Party are misleading and obscure the fact that he has no plan to separate from the Bakrie Group

— Mr. Rothschild says that the Separation Proposal is a purely optical separation of the Company from the Bakrie Group. This is inaccurate and misleading. The Separation Proposal involves the cancellation of the Bakrie Group’s interest in the Company

— The Takeover Panel’s statement of 19 December 2012 makes it clear that Borneo is treated as a concert party of the Bakrie Group for a specific reason: as a result of having entered into a joint venture agreement with them, through which arrangement Borneo owns its Bumi shares. This arrangement was declared by Borneo to, and agreed with, the Takeover Panel at the time. Borneo will be dissolving this joint venture arrangement with the Bakrie Group to enable the Separation Proposal to proceed

— Mr. Rothschild has only one proposed action to effect a separation from the Bakrie Group and he is powerless to achieve it. He proposes that the Company “achieve enforcement of the sell-down of the Bakrie concert Party required by the Takeover Panel”. However, the Company does not have the power to force shareholders to sell their shares

Samin Tan is highly focused on restoring value for Bumi shareholders

— Samin Tan invested US$1 billion in order to acquire his interest in the Company’s shares; this investment is now worth approximately US$350m. By contrast, Mr. Rothschild’s losses have been heavily cushioned by his bonus shares and advisory and other fees and expenses he charged to the Company

— Mr. Rothschild claims that Samin Tan has negotiated a “side-deal” with the Bakrie Group. This is untrue. Borneo will need to dissolve its joint venture arrangement with the Bakrie Group to enable the Separation Proposal to proceed, but the terms of this have not been negotiated

— Any arrangements between Borneo and the Bakrie Group will not impact upon the financial terms of the Separation Proposal and will be transparent to shareholders

The Board is already fully addressing all possible routes to recover losses

— Mr. Rothschild claims that his proposed board would investigate and pursue a number of issues that may result in potential litigation, but this is no more than the Board is already doing. Mr. Rothschild’s board would not be able to investigate the allegations with any greater success

— The Board has already extensively investigated the alleged irregularities. It will continue to pursue claims where there is a realistic prospect of recovery, and is also liaising with relevant regulators to assist it in substantiating claims and pursuing recourse

— The Board notes that this is another area where Mr. Rothschild has changed his position over the last few weeks. Previously, he has called for the publication of the Macfarlanes Investigation in full. He now plans to publish the “results of the Macfarlanes Investigation”. It appears he may be beginning to understand the issues. Once fully grasped, he will realise that it is not in the Company’s and all shareholders’ interests to publish any more at this stage than the Company already has. There are still live issues arising from the Investigation and the Board will not risk prejudicing their outcome in any way

— The Board wishes to draw shareholders’ attention to a letter received by the Company from Macfarlanes on 4 February, which has been published on the microsite at http://www.bumiplc.com/general-meeting/, confirming the independence and integrity of Macfarlanes and its Investigation in light of defamatory comments from NR Investments Limited

The Board has a clear plan to separate from the Bakrie Group and Bumi Resources and focus on developing Berau. Mr Rothschild’s strategy is confused and keeps changing. His latest plan would see the Bakrie Group remain as shareholders of the Company and the Company continue as a shareholder of Bumi Resources without any effective influence. In addition, his proposed board would face very significant and costly litigation from the Bakrie Group from day one. The Board urges shareholders to vote against the resolutions to avoid a fate of further friction and complete deadlock.

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