Bumi Plc (BUMI)’s defeat of an attempt by co-founder Nathaniel Rothschild to take control of the board clears the way for the coal producer to proceed with a deal to split from Indonesia’s Bakrie family.
Rothschild, scion of a centuries-old banking dynasty who sought backing to remove the chief executive officer, chairman and the majority of the directors, had his proposal rebuffed by shareholders at a London meeting yesterday. The 41-year-old financier said the board had failed shareholders as he battled the Bakrie family over control of Bumi after creating the coal venture with them in a $3 billion deal in 2010.
Bumi will now seek investors’ approval for the Bakries to swap their shares in Bumi Plc for the London-traded company’s stake in PT Bumi Resources (BUMI), one of its Indonesian units that’s under investigation for alleged financial irregularities. Bumi Plc will be left with an 85 percent stake in PT Berau Coal Energy, Indonesia’s fifth-largest coal miner.
“Now the board can work with the Bakries on separating from Bumi Resources and both parties can move forward,” Richard Knights, an analyst at Liberum Capital Ltd., said in London. Yesterday’s vote “definitely helps the split because the Bakries have said they are supportive of the board’s proposal.”
While 19 of 22 resolutions were rejected at the meeting, including the removal of Chairman Samin Tan and CEO Nick von Schirnding, investors supported Rothschild’s proposal to oust two directors, including Bakrie representative Nalinkant Rathod.
One of Rothschild’s proposed board members, former U.K. ambassador to Indonesia Richard Gozney, was backed by shareholders and the financier’s bid to remove Jean-Marc Mizrahi was also supported.
Bumi fell 8 percent to 360.1 pence by the close in London, the lowest for two weeks. It plunged 69 percent last year amid boardroom infighting and financial probes in the U.K. and Indonesia. While Rothschild and the Bakries sought to unwind their collaboration, Bumi said it could only be achieved with the current board.
The tide turned in the board’s favor on Feb. 18 when Rosan Roeslani, an associate of the Bakries, sold about 24.2 million Bumi shares to three separate investors. That increased the amount of votes Rothschild needed to win at the meeting yesterday, as the voting rights associated with those shares had previously been excluded by a U.K. Takeover Panel ruling.
“Without the Takeover Panel intervention we would have been successful in 20 of 22 resolutions,” Rothschild said in a statement. “The current board no longer has a mandate and needs to move on. They should promptly resign.”
Rothschild said that about two-thirds of “non-aligned” shareholders voted against the board. He said before the meeting that he would maintain pressure on the board should he lose, and “wait and see” whether to support the separation proposal.
The removal of Tan was supported by 43 percent of shareholders, while 44 percent backed the ouster of Scott Merrillees, Bumi’s chief financial officer. Of the 12 directors Rothschild sought to remove, only CEO von Schirnding and Deputy Chairman Julian Horn-Smith received more than 60 percent support from shareholders, with 61 percent and 62 percent respectively.
Von Schirnding appealed to Rothschild and other shareholders who voted against the board to support its proposals for separation from the Bakries, when he spoke with Mark Barton and Olivia Sterns on Bloomberg TV’s Countdown Show today. Von Schirnding said the board had “a clear plan” to put to a shareholder vote in April or May.
Rothschild and the Bakrie Group, a palm-oil-to-property empire run by billionaire politician Aburizal Bakrie and his brothers, set up Bumi by bundling 29 percent of Bumi Resources and 85 percent of PT Berau Coal Energy. (BRAU) They sought to create an Indonesian “resources champion” in combining the coal companies, a tie-up that saw the Bakrie Group became the first major Indonesian business to tap the U.K. equity market.
The Bakries have proposed exchanging their 23.8 percent of Bumi for 10.3 percent of Bumi Resources. That plan would also see Bumi Plc sell the remaining 18.9 percent of its Bumi Resources stake for $278 million to the family.
Bumi Resources had its debt rating cut to B2 from B1 today by Moody’s Investors Service, which cited the Jakarta-based company’s debt-to-earnings ratio and weak coal prices for the downgrade. Corporate governance “remains an issue” for Bumi Resources, even with the likely separation from Bumi Plc, Moody’s said.
The Bakrie Group welcomed the outcome of yesterday’s meeting, saying it “gives the board a clear mandate to restore shareholder value by progressing with our separation proposal.” The group said it hopes Rothschild “joins our own move to restore value at Bumi by supporting our proposal.”
Tan will step down as chairman once an independent replacement is found, according to Bumi, which said it also plans to slim down its board. The company said it will continue to pursue potential claims where there is a prospect of recovery following a recent investigation conducted by Macfarlanes LLP.
Rothschild, who holds about 14.8 percent of Bumi stock according to data compiled by Bloomberg, had nominated former Leighton Holdings Ltd. (LEI) head Wallace King as chairman and Brock Gill as CEO. He had also sought to reappoint himself to the board, and to bring in Indonesian businessman Hashim Djojohadikusumo.
The Financial Times reported Feb. 20 that Aburizal Bakrie may face Djojohadikusumo’s brother, Prabowo Subianto, in Indonesia’s 2014 presidential elections.
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