Later today, Bumi Plc shareholders will meet at London’s Armory House to vote on Nathaniel Rothschild’s attempt to replace 12 of the company’s 14 directors. It should mark the dissolution of a bitter and acrimonious marriage between the financier and his Indonesian partner, the Bakrie group. However, it is unlikely to mean the end of recriminations.
Rather than lead to a separation, where the two parties can move on and put the past behind them, the decision today might merely change the venue of their disputes and for their personal vitriol: moving from public relations departments to the law courts.
The company was originally billed as a perfect match between a leading emerging market natural resources group and sophisticated Western investors, consummated in London’s financial centre where strict rules on corporate governance would ensure a healthy and prosperous partnership.
Instead, it degenerated into a messy, destructive feud that has badly exposed Rothschild, the Bakries and their friends, investors, advisers and regulators.
Rothschild’s proposal is meant to distance Bumi from the Bakrie family, and allow it to pursue financial claims against its operating subsidiary Bumi Resources. He has nominated former Leighton Holdings head Wallace King to replace Samin Tan as chairman and Brock Gill to become CEO, and he also wants to be reappointed to the board that he stepped down from last October.
The plan is in response to Bumi’s own divorce proposal, put forward in October. The Bakries suggested exchanging their 23.8% stake in Bumi plc for 10.3% of Bumi Resources, and that Bumi plc sells its remaining 18.9% holding in the operating company to them for $278 million.
Bumi share price fell 69% in 2012, although it has risen more than 40% this year after Rothschild announced his coup attempt.
The Bumi board and its supporters believe that the Bakrie exit plan will result in a cleaner and more decisive separation. A victory for Rothschild would cause the Bakries to withdraw their proposal and might prompt them to take legal action against a breach of the original terms of their 2010 partnership with Rothschild.
On the other hand, it is hard to see how a defeat for Rothschild would be accepted gracefully. Instead, with his reputation and pride damaged – and being convinced of financial misappropriation at Bumi Resources – he is more likely to continue to fight the battle from “outside the tent” and in the courts.
Until this week, the arithmetic seemed to favour Rothschild.
But, on Tuesday, UK-based Standard Life said it would not use its 2.2% stake in Bumi to support Rothschild, although it had been one of five leading institutional investors whom the financier had claimed in December would support a restructuring of the company. The others included Schroders (which owns more than 1%), Sofaer Capital (about 3.5%) and Taube Hodson Stonex Partners. They apparently still back Rothschild, who together with St James' Asset Management hold just over 25% of the voting shares.
"After careful consideration of the resolutions, we believe the restructured Bumi plc board has the best prospects of exiting the Bakrie relationship and maximising long term value for the remaining shareholders. Consequently we shall support the Bumi board and vote against all the resolutions being considered at the February 21 meeting," said David Cummings, head of equities at Standard Life Investments.
But, the biggest blow to Rothschild occurred a day earlier, when Rosan Roeslani, an Indonesian businessman and friend of the Bakries, sold his 10% stake to three investors who, unlike Roeslani, will be allowed by the UK Takeover Panel to exercise their votes at the shareholder meeting.
Between them, the Bakrie family, current Bumi chairman Samin Tan and Roeslani through his Recapital Group held 58% of Bumi’s equity, but their joint voting power had been restricted to 29.9% because the Panel ruled that they were acting in concert.
No similar restriction applies to the three new shareholders – a company called Flaming Luck Investments controlled by Indonesia’s Tanoesoedibjo family, and hedge funds Argyle Street Management and Avenue Asia Capital Management. It is unlikely that the sales would have happened unless the Bakries believed their votes would go their way; and indeed, the Taoesoedibjo’s MNC group and Avenue Asia Capital have links to the Bakrie’s property group.
The saga started in November 2010 when Rothschild raised cash from investors, including £100 million ($155 million) of his own money, for a new London-listed shell company called Vallar. Its objective was to buy “a single major business or operational asset in the global metals, mining and resources sector". JP Morgan Cazenove suggested Indonesia’s biggest coal miner Bumi Resources, controlled by the Bakries, and Roeslani’s Berau, the country’s fifth biggest coal producer.
Vallar agreed to take a 25% holding in Bumi Resources and 75% in Berau, later raised to 29% and 85% respectively. The $3 billion reverse takeover gave the Bakries a 47% stake in the company. Rothschild became co-chairman with Indra Bakrie, younger brother of patriarch and Indonesian presidential candidate Aburizal. Rothschild and associates also earned a “bonus” for completing the deal, by converting their “B” shares into an additional 6.7% stake.
The share price of the newly-named Bumi plc quickly rose to £14 from the subscription price of £10, and investors, who included Schroders, BlackRock and the Abu Dhabi Investment Council, were happy - although Rothschild didn't need their approval for the deal. Instead, they trusted the dynamic, young financier and advisers Credit Suisse and JP Morgan Cazenove to complete due diligence.
But, the hasty marriage soon went sour, although there was nothing leisurely about the subsequent repentance. The past two years have been marked by acrimony, name-calling, private investigations, separation and official intervention against a backdrop of constant manoeuvring and appeals to public opinion.
Bumi's share price fell as the coal price declined. Meanwhile, investors learned that the Bakries had pledged their shares as collateral for a $1.3 billion loan from Credit Suisse. They then sold half of the shares to Samin Tan, who financed the purchase with a loan from Standard Chartered.
Suspicions were aroused after only a brief honeymoon. Rothschild publically criticised Bumi Resources for failing to call-in related party loans, and the Bakries and Tan responded angrily by demanding that Rothschild and four other directors should resign. Rothschild stepped down as co-chairman but remained on the board after conciliatory intervention by fellow directors Lord Renwick and Sir Julian Horn-Smith.
Since then, the board has been reshuffled, with Tan appointed chairman last year and Rothschild stepping down in October. Complaints of financial irregularities at the two operating companies – Bumi Resources and Berau – have been at the heart of Rothschild’s campaign to regain control. He alleges that $1 billion has gone missing, and if he succeeds in ousting the board today he will pursue litigation against the Bakries, who deny the accusations against them.
An independent investigation by law firm Macfarlanes was launched in September after Rothschild provided evidence from an anonymous whistleblower. Bumi retaliated by claiming emails had been illegally hacked.
Macfarlane’s report was completed in January, but its findings haven’t been released publically, apparently because to do so might contravene Indonesian law. So each side has been able to give its own spin on the issue.
Amid more personal mud-slinging, the Bumi board said that the investigation had uncovered only "circumstantial evidence" to support the allegations, while Rothschild accused Bumi of making a “bowdlerised announcement”.
Nevertheless, Bumi has said that it will take legal action to recover lost assets and work with the UK’s Serious Fraud Office and the Indonesian authorities.
Whatever the result of the shareholder vote today, legal action of some kind is almost certain to follow.
