Rothschild’s Bumi Bid Struggles as Standard Life Backs BoardThomas Biesheuvel
Nathaniel Rothschild’s bid to oust most of the board of Bumi Plc, the Indonesian coal venture he founded and is fighting to gain control of, may struggle after one of his earlier supporters said it would vote against him.
Standard Life Plc, with a 2.2 percent stake in London-listed Bumi Plc, said yesterday it won’t support Rothschild’s plan to replace 12 of Bumi’s 14 directors, including its chief executive officer and chairman. Rothschild said in December, before he called for the board changes, that he had the backing of the-then top-five institutional investors, including Standard Life, for a different proposal to restructure Bumi Plc.
The move comes after a major shareholder said this week it sold a 13 percent stake, increasing the support Rothschild needs to win as those voting rights had previously been excluded. Rejecting Rothchild’s plan would make it easier to split Bumi Plc from its Indonesian unit PT Bumi Resources and help the share price, according to Liberum Capital Ltd.
“The separation is key,” said Richard Knights, an analyst at Liberum Capital. “It extracts value from the PT Bumi Resources stake, that’s the key thing. You can’t do that under Nat’s proposal because the Bakries won’t buy it.”
Rothschild and Indonesia’s Bakrie Group, a palm oil-to-property empire run by billionaire politician Aburizal Bakrie and his brothers, set up Bumi Plc by bundling 29 percent of Bumi Resources and 85 percent of PT Berau Coal Energy in a $3 billion deal in 2010. They sought to create an Indonesian “resources champion” combining the nation’s largest coal producer, Bumi Resources, and fifth-largest, Berau. Bakrie became the first major Indonesian business to tap the U.K. equity market.
Shareholders will gather in London tomorrow at Armoury House, home to the Honourable Artillery Company, the headquarters of Britain’s oldest army regiment, to decide the company’s future. None of the Bakrie family will attend, according to spokesman Chris Fong. Rothschild, who holds about 14.8 percent of Bumi Plc stock according to data compiled by Bloomberg, is seeking reappointment to the board and has nominated former Leighton Holdings Ltd. head Wallace King as chairman and Brock Gill as CEO.
Rothschild’s chance of unseating the Bumi Plc board is “remote,” the Australian newspaper reported today, citing nominee King. The vote is going to be “very close,” Alexander Ramlie, a director of Bumi Plc, said today in a text message.
Bumi Plc plunged 69 percent in London trading last year amid the battle for control, boardroom infighting and financial probes in the U.K. and Indonesia. Both Rothschild and the Bakries are seeking to unwind their collaboration and the Bumi Plc board is also pursuing a separation from the Bakries.
“We shall support the Bumi board and vote against all the resolutions being considered,” David Cumming, head of equities of Standard Life Investments, said in a statement yesterday. “We believe the restructured Bumi Plc board has the best prospects of exiting the Bakrie relationship and maximizing long-term value for the remaining shareholders.”
Institutional Shareholder Services Inc., an investors’ adviser, recommended they remove representatives of the Bakries and Bumi Plc Chairman Tan from the board. Scott Merrillees and Alexander Ramlie should go as “they do not appear to offer a viewpoint different from Tan’s, and may simply create a voting block rather than add additional value.” Nathin Rathod, the remaining Bakrie representative, should also be ousted, it said this month in a report.
At the same time ISS said that shareholders should reject the bid to replace all independent directors as that may thwart plans to separate Bumi Plc from the Bakries.
Bumi Plc surged a record 39 percent in London on Oct. 11 after the Bakries offered to buy back coal assets and effectively dissolve the $3 billion deal. The stock has added 5 percent in the past two days, to close at 396 pence in London trading, as the sale of a stake in the company increased the number of votes Rothschild needs to win approval.
Rothschild, who has accused Bumi management and Chairman Tan of failing investors, said yesterday the shares had benefited because of his intervention and efforts to remove members of the board.
“This vote will be very close and the existing board will hang on only thanks to an 11th hour Takeover Panel ruling,” Rothschild said yesterday by e-mail. “They therefore have no real mandate. Any serious buy-side investor knows that the shares have risen for one reason only - my intervention.”
The stock, up 44 percent this year, has surged since Rothschild announced the extraordinary general meeting to try to depose the board, whose members aren’t responsible for the recovery in the stock price, Rothschild said last week.
“Since we launched our EGM the stock has risen from 265 pence to 404 pence, and this is not because of the current boards’ efforts - the Bakrie separation was already announced before we called our EGM,” he said.
The tide turned in the board’s favor Feb. 18 when Rosan Roeslani, an associate of the Bakries, sold about 24.2 million Bumi Plc shares to three separate investors. Rothschild will need to win those votes, which were previously excluded by a U.K. Takeover Panel ruling.
The disposal has “lifted the voting rights in favor of the Bakrie Group,” said Norico Gaman, head of research at BNI Securities in Jakarta. “I would put Bakrie’s probability to win the EGM at 60 percent, while Nat has a 40 percent chance.”
A separation of Bumi Resources would value Bumi Plc at 429 pence a share, while a “sum of the parts” valuation should the deal be scuttled would be below 300 pence, according to Liberum.
“We see significant downside here if Rothschild wins the vote and removes 12 of the 14 directors, as the ability of the company to extract value from its Bumi Resources stake will be materially diminished,” Liberum said in a note to investors.
A Rothschild victory tomorrow may force Bumi Plc to buy out holders of Bumi Resources, according to a commissioner at the Indonesian financial services regulator, OJK. Should the ouster of the company’s board, including CEO Nick Von Schirnding, be deemed a change of control over the Bumi Plc subsidiary, it would trigger a mandatory offer for the rest of its shares, said OJK’s Nurhaida, who goes by only one name.
The Bakries propose exchanging their 23.8 percent in Bumi Plc for 10.3 percent of Bumi Resources. That plan also calls for Bumi Plc to sell to the Bakrie Group the remaining 18.9 percent of its Bumi Resources stake for $278 million in cash.
Rothschild wrote in a Jan. 7 letter that the board had failed and CEO von Schirnding and Chairman Tan were among directors who should be removed. That day, Bumi Plc acceded to his request for a shareholder meeting to vote on the removal directors.
Sofaer Capital Inc., which owns more than 1 percent of Bumi, said last month it supports Rothschild’s proposal. The changes in personnel would benefit Bumi, the Financial Times cited Richard Buxton, head of U.K. equities at Schroders Plc, as saying in January. Schroder Investment Management Ltd. had a 3.51 percent stake in Bumi as of Oct. 3 last year, according to data compiled by Bloomberg.