bmg litigation update

Warning and apologies to those who don't like long posts - if not interested no need to read.

I was in Sydney during the week and I popped past the Federal Court and picked up a couple of documents filed in the BMG shareholder dispute so I thought I’d provide a bit of an update.

I obtained a copy of the following documents filed by Hillam:

• Notice of Appeal
• Interlocutory Application
• Notice of Motion

The Notice of Appeal sets out the grounds of appeal, or the matters where the Judge may have erred in exercising his judgement. The Notice of Appeal contains 50 matters where Hillam has put the Court on notice that he will appeal. Seems like a bit of a shot gun approach (easier to hit something with a shot gun than a than with a single bullet). The new orders sought by Hillam are that the previous orders by the first Judge who heard the case be dismissed (overturned). Alternatively that Hillam and Teeranukul (another but smaller shareholder in BMG) buy the shares of Ample Source at a price specified by the Court, or, an order that BMG buys back the shares of Ample Source.

The interlocutory Application requests that the Orders (which includes the appointment of a liquidator to BMG) be stayed (put on hold) pending the outcome of the appeal. To my knowledge, this has not been decided but given that the appointment of a liquidator would be difficult to reverse, I would expect the Judge to put the Orders on hold until the appeal has been heard.

The Notice of Motion (based on my understanding) effectively requests that the BMG board be comprised on two directors appointed by Hillam, two by Ample Source and another person (Hillam has put forward a person or such other fit and proper person as the Court may determine). It also provides for there to be seven days notice of any meeting and a quorum of 3 for any directors meeting (only need 3 to make a decision).

So what does all this mean?

The Court of Appeal sits at specified times during the year. The next sitting dates are 30 April to 25 May and then 30 July to 22 August. Therefore, while I suspect unlikely, it may be possible to have the Appeal heard before 15 May. The Appeal may confirm the original judgement or have a different outcome.

The other option could be that Hillam wants to regain control of the Board so he can sell BMG’s interest in the Hawson’s JV to a new entity – I’d assume one he controls and without Ample Source.

If the original orders are overturned before 15 May or if Hillam can sell BMG’s interest in the Hawson’s JV to a new entity, there will still need to be $25M paid to CAP by 15 May 2012 otherwise they are in default and CAP can buy back the interest in Hawsons.

If a liquidator is appointed, they can sell BMG’s interest in the JV, but the new purchaser would still need to pay CAP $25M by 15 May 2012 otherwise they are in default and CAP can buy back the interest in Hawsons. The original judgement also contained something about the appointment of a liquidator to BMG triggering a default clause in the JV agreement that also provided CAP on opportunity to buy back CAP – but don’t know details of this.

I take great comfort that Hillam and Ample Source think that Hawsons is worth the time and cost of this Court battle. I assume that there would also be others with a similar view and interest in being a part of Hawsons.

Therefore, I see there being two likely outcomes – that CAP will either get a $25M payment by 15 May 2012 or get to buy back Hawsons – and I’m sure Nick and the boys at CAP will have a Plan B ready and waiting for a buy back. My best guess is that there will be no $25M payment but given the project has a NPV of $3.2B and IRR of 23%, I can’t help but wonder if Plan B could be the better outcome. Regardless of which way it goes, I suspect we will not know until the 15th (or only shortly before if a liquidator is appointed).