Nathaniel Rothschild, whose ancestor helped bankroll Britain’s war against Napoleonic France, is studying a $1.2 billion offer for the assets of Bumi Plc from one of his co-founders of the Indonesian coal venture, after the stock slumped about 75 percent in two years.
Indonesia’s Bakrie family, which sold a stake in the country’s largest coal exporter into the original deal in 2010, has offered to buy all of the venture’s assets to help resolve “irreconcilable differences” with Rothschild and the other founders, it said in an Oct. 10 letter to the independent directors of London-based Bumi Plc.
Investors in the 2010 initial public offering of Rothschild’s Vallar Plc, the precursor to Bumi, saw the drop in the value of their holdings reach as much as 88 percent last month after it announced an investigation into financial “irregularities” at its Indonesian investments. The probe marked the height of a dispute between Rothschild, 41, and Indonesia’s prominent Bakrie family, which founded a palm oil-to-property empire in 1942.
The proposals “could theoretically leave the company back where it started as a cashed-up special-purpose acquisition company, completely out of Indonesian coal and any influence from the Bakries,” Barclays Plc analysts David Butler and Ian Rossouw said yesterday. “Crucially the proposal comes from the Bakries,” the analysts said in a report titled “Bumi-Bakries Divorce Proceedings Begin.”
Bumi Plc, which counts Rothschild as a director, said it’s studying the offer. The stock jumped by a record in London yesterday, advancing 39 percent to 259 pence. That values the company at 624 million pounds ($1 billion).
The proposal from the Bakrie Group would leave Bumi, which holds 29 percent of Indonesia’s PT Bumi Resources as well as 85 percent of a second coal producer in the country, without any mining assets.
The Bakrie Group has offered to swap its 23.8 percent stake in London-listed Bumi Plc for 10.3 percent of Bumi Resources. The Bakries also proposed to buy back the remaining 18.9 percent in Bumi Resources by Christmas for about $278 million, or 680 rupiah a share.
It offered $947 million for Bumi Plc’s stake in Jakarta-based PT Berau Coal Energy Tbk within six months. The offer is a 67 percent premium to Oct. 10 closing prices, Liberum Capital Ltd.’s Richard Knights said yesterday.
Rothschild said in an e-mailed statement that Bumi Plc would continue to face challenges even after an exit by the Bakrie Group.
“As has been noted over the last 12 months, there have been challenges in implementing appropriate standards of corporate governance and these have been a source of friction among the board members and shareholders,” Rothschild said.
“Even if the Bakries exit, one of the key concerns that I share with other minority investors is that Bumi Plc would still face a concentration of ownership by a small number of closely related parties and such challenges would remain.”
Rothschild said he noted the announcement by the Bakrie Group and said he would wait for the investigation a London law firm is conducting on behalf of Bumi Plc’s independent directors before commenting further.
Bumi Plc, founded as Vallar, raised 707 million pounds in its initial public offering. The company sold shares in the IPO at 1,000 pence apiece.
The proposal also includes a demand that Rothschild return “for cancellation” 16 million shares in Bumi Plc he received, “given that these shares were awarded to the founders in return for a transaction which is now being unwound,” according to the letter from Long Haul Holdings Ltd., a unit of the Bakrie Group.
Those shares are equivalent to 6.6 percent of the company, according to Barclays. Rothschild currently owns 10 percent of Bumi Plc.
“This is an attractive, pragmatic and deliverable solution,” according to the letter signed by director Omar Luthfi Anwar. The offer is the result of “irreconcilable differences between the original promoters of the company and the current major shareholding groups.”
Bumi Resources gained 4.2 percent to 750 rupiah in Jakarta trading at 10:44 a.m. local time. Berau Coal Energy jumped as much as 20 percent to 240 rupiah, adding to yesterday’s 34 percent advance. The stock was up 13 percent at 225 rupiah at 10:55 a.m.
“The development appears positive and a likely all-round win-win,” Dileep Srivastava, a Bumi Resources director, said yesterday by e-mail. “We are focused on operational excellence, without distractions.”
The offer comes less than three weeks after London-traded Bumi said it would start an independent investigation linked to a $637 million writedown of development funds and exploration assets in Bumi Resources’ December 2011 year-end financial statement.
Relations between Rothschild and Bumi Co-Chairman Indra Bakrie began to sour last year after the financier made public a letter to then-Chief Executive Officer Ari Hudaya urging a “radical cleaning up” of Bumi Resources. He also sought a timetable for the “repatriation of funds deposited with connected parties.”
The Nov. 8 letter cited $394 million of business development funds under non-current assets on the balance sheet of Bumi Resources as at June 20, 2011.
“The existence of these assets are well known to the investment community and certain of these assets are invested with connected parties,” wrote Rothschild, the son of financier Jacob Rothschild. “This is one of the principal reasons why PT Bumi Resources’ shares trade at a significant ‘corporate governance’ discount to the broader Indonesian coal sector.”
PT Bakrie & Brothers, controlled by Aburizal Bakrie, billionaire and brother of Indra Bakrie, sold half of their 47.6 percent stake in London-listed Bumi in November to help pay $1.35 billion in debt owed to Credit Suisse Group AG. Aburizal is the chairman of the Golkar Party of Indonesia. He’s also the 2014 presidential candidate for the nation’s second-biggest political party, which was founded by former dictator Suharto.