Bryan Frith | September 03, 2009 Article from: The Australian.
THE enigmatic New Age World that surfaced during last year's contested takeover for Herald Resources appears to have undermined the independent directors' defence against the mop-up takeover bid from the Indonesian public company, PT Bumi Resources.
Bumi last year won control of Herald after a protracted takeover contest. It began in late 2007 with a cash bid from Bumi of $2.25 a share, conditional on a minimum acceptance of 50.1 per cent, rather than 90 per cent, which suggested that Bumi was prepared for the possibility the shares would remain listed with minority holders.
Bumi's offer was countered by a $2.50-a-share joint venture cash offer from the state-owned Indonesian group PT Antam and Chinese lead-zinc smelting group Shenzen Zhongjin. Bumi lifted its offer to $2.55 a share but was topped by Antam-Zhongjin with a two-tiered offer, a base price of $2.60 a share, rising to $2.65 if the joint bidders secured 90 per cent.
Bumi then went to $2.80 a share but was matched at that price by Antam-Zhongjin. The Herald directors responded by recommending that shareholders accept either offer. Bumi broke the impasse by lifting its bid to $2.85 a share. Antam-Zhongjin folded their tent and accepted and Bumi went on to secure 84.2 per cent of Herald. Three Bumi representatives went on the six-member Herald board.
Immediately after the close of the offer, Herald's share price slumped from around $2.80 to $1.90, but late last year, in the midst of the GFC, the price collapsed dramatically, falling to as low as 10c a share. Since April the share price has moved in a range of 35c to 50c a share.
Two weeks ago, Bumi announced a cash bid of 70c a share for the remaining Herald shares, conditional on satisfying the compulsory acquisition criteria and FIRB approval. The bid price was a premium of 75 per cent to the previous closing price of 40c and Bumi president Ari Hudaya described it as a "compelling opportunity" for Herald shareholders to exit their investment.
The independent directors disagreed and have recommended that the minority shareholders reject the offer, which they described as opportunistic, unsolicited and "a surprise". The independents have pointed out that although the offer is a premium to the share price over the last six months it is only a quarter of last year's bid price, and that world lead and zinc prices have been recovering and are already back to the price levels when Bumi took control.
The independents have appointed Beerworth & Partners as financial adviser and Lonergan Edwards to prepare an independent expert's report as to whether the offer is fair and reasonable. An expert's report is a statutory requirement because Bumi owns more than 30 per cent of Herald and has representatives on the Herald board.
Enter New Age World. Actually New Age came on the scene in February last year when it began accumulating a stake, paying between $2.61 and $2.63, well above the then offer price. New Age ended up with 16.5 million shares, or 8.2 per cent of the capital, at an average entry price of $2.68 a share. Herald was suspicious, noting that New Age had a similar registered address in Singapore to that of the Bumi bid vehicle, but Bumi and New Age both denied there was any connection between them. Herald sent off tracing notices and when it was not satisfied with the response prevailed on the corporate regulator to also send off tracing notices. ASIC didn't get much further although New Age did assert that it was acting on its own behalf.
Subsequently, Indonesia's Samuel Group, which is a fund manager and also has a stockbroking arm, Samuel Sekuritas, owned up to a relevant interest in the shares held by New Age. New Age surfaced again yesterday when Herald told the ASX that New Age had advised that it intended to accept Bumi's offer, subject to no superior offer emerging. Given Bumi's 84.2 per cent holding there appears to be virtually no prospect of a rival offer.
The independents repeated their recommendation to reject and pointed out New Age was premature: New Age cannot accept until the Bumi offer has been sent to shareholders and that's at least a week away. It turns out that New Age's advice was by way of a media release and that it was initially sent to the ASX, which declined to release it. The release was then faxed to Herald, possibly by ASX, which released it on the basis that it was material price sensitive information.
All of which suggests that New Age not only wants to accept but that it wants the world to know that it is accepting. If that is so then it poses the question as to why New Age is seeking to publicise its acceptance. Normally a target shareholder, particularly a major holder, does not rush to accept, and certainly doesn't announce its intention to do so before the offer has even been made. Instead, standard practice is to hold off acceptance as long as possible in the hope that will persuade the bidder to increase the offer price in order to attract acceptances.
It's curious that New Age didn't accept the initial bid, when Bumi was at around 84 per cent. Had it done so it would have made a profit of 17c a share, or $2.8m, and Bumi would have satisfied the then-compulsory acquisition trigger of 90 per cent. It's possible that having missed out the first time around, for whatever reason, New Age now wants out and considers that 70c is much better than 40c a share, even though it will incur a loss of almost $33m on its investment.
Because Bumi already owns more than 20 per cent of Herald it requires not only a relevant interest in 90 per cent of Herald, but acceptances for at least 75 per cent of the shares for which it is bidding. Bumi is bidding for 16 per cent, and 75 per cent of that figure is 12 per cent. Add that to its existing 84 per cent and it means that it requires at least 96 per cent of Herald before it can compulsorily acquire the remaining shares, and that's an extremely big ask. Acceptance by New Age would take Bumi to 92.4 per cent. If Bumi doesn't waive the compulsory acquisition condition the bid will fail if Bumi falls short of 96 per cent. That could be an incentive for New Age to try to influence other holders to accept.
Herald is an Australian company but its main asset is the world-class Dairi lead-zinc project in Northern Sumatra. Herald has long been frustrated at the inordinately long time it is taking to obtain forestry approval, without which the project cannot proceed. When Bumi first bid it made it clear that, as an Indonesian company, it considered it would have a better chance of obtaining approval if it gained control of Herald.
Well it did secure control but forestry approval still hasn't come through and there is now talk that it may need a presidential edict before approval can be granted. Tea leaves readers may consider that Bumi's attempt to take out the minorities suggests that the Indonesian company considers that approval may finally be close at hand. If that is right it may be a good reason for minority holders to hold off on acceptances.
HER Price at posting:
75.0¢ Sentiment: None Disclosure: Not Held
