February 18, 2013 11:55 am

Bumi – an activist pre-empted

Stake sale by the Bakries camp reduces Rothschild’s chances of ousting the board

Paradoxes ‘R’ Us. The camp of the Bakries, powerful Indonesian shareholders in dysfunctional coal miner Bumi, has just sold 13.4 per cent of the shares. Oddly, this reduces the chances that Nat Rothschild, vengeful co-founder of the business, will oust the board in a shareholder vote on Thursday, a shake-up damaging to the interests of the Bakries.

The status quo would be better for short-term value. But it would be bad for the much-needed disclosure of alleged financial irregularities that, it is claimed, led to hundreds of millions of dollars disappearing from subsidiary PT Bumi Resources.

First, to unpick the apparent paradox of the Indonesians increasing the pro-board vote by reducing their stake. The Takeover Panel has ruled that 13.4 per cent shareholder Bukit Mutiara was collaborating with the Bakries, who part-control a 29.9 per cent voting bloc through a joint venture. That meant only 29.9 per cent of the votes of the 43 per cent total could be exercised.

By selling the 13.4 per cent holding, as the panel required, the Indonesians empower its votes. The main buyers, two hedge funds, are likely to support the board, which offers the surest chance of a swift return. Directors such as chairman Samin Tan, the Bakries’ joint venture partner, want the family to sever its links with Bumi by buying back a stake in PT Bumi Resources with $278m in cash and all their Bumi shares.

Mr Rothschild also wants to cut the tie. But his slate of directors could be expected to take a more militant stance, both in striking a deal and in exposing the truth about the alleged irregularities. The board has contacted the Serious Fraud Office about these.

It is the fate of the activist investor to trigger pre-emptive action from his targets ahead of a crunch poll. However, the case for rebels such as Schroders to register a protest vote against directors remains strong. They should keep up pressure on the board, and beyond that on the UK financial authorities, for full public disclosure of what went wrong at Bumi.

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