Leucadia Sues Fortescue Metals in Australia to Block Issuance of New Note
Leucadia National Corp., the third- largest shareholder of Australia’s Fortescue Metals Group Ltd., said it filed a summons against the iron ore mining company and Chief Executive Officer Andrew Forrest.
Leucadia was informed on Aug. 9 that Fortescue unit Chichester Metals Pty Ltd., or FMG Chichester, believes it “is entitled to issue additional subordinated notes in an unlimited amount identical to the $100 million principal amount subordinated note of FMG Chichester held by Leucadia,” the shareholder said in a company filing today.
Leucadia, which owns 8 percent of the Perth-based company, doesn’t believe Fortescue has the right to issue additional notes that affect Leucadia’s interest, it said. The company filed the writ against Fortescue, the unit and CEO Forrest in the Supreme Court of Western Australia today.
Fortescue spokesman Cameron Morse couldn’t immediately comment when contacted by Bloomberg. The company, Australia’s third-biggest iron ore producer, was examining funding options for expansion plans “both within existing debt structures and beyond that,” Chief Financial Officer Stephen Pearce told reporters on Aug. 26.
Under the terms of Leucadia’s note, agreed to in 2006, Leucadia is entitled to interest of 4 percent of sales, net of government royalties, from the iron ore produced from Fortescue’s Cloud Break and Christmas Creek mines, according to the filing. Fortescue claims the issue of further notes can dilute the interest to be paid on a pro-rata basis, Leucadia said in the filing.
“Leucadia is outraged that FMG and its chief executive officer, Andrew Forrest, now assert this claim,” it said. “Leucadia did not, and never would, agree to such dilution.”
Fortescue last month said full-year profit rose 14 percent to $581 million after production gained. Forrest is the company’s biggest shareholder with a 31 percent stake. The company reported a 76 percent jump in sales to $3.2 billion.
Fortescue rose 5.1 percent to A$4.92 by the 4:10 p.m. close in Sydney. The company $1.23 billion in cash at the end of the financial year, from $655 million last year. Leucadia gained 2.5 percent to $21.88 by 1:10 p.m. in New York.
Leucadia is seeking damages under the Australian Trade Practices Act 1975, Corporations Act 2001, Australian Securities and Investments Commission Act 2001 and Fair Trading Act 1987 against Fortescue and Forrest for “misleading and deceptive conduct,” it said.