Richard Magides in moral win over Rio Tinto in ERA row
The takeovers panel has handed dissident uranium investor Richard Magides a moral victory over Rio Tinto.
The Takeovers Panel has handed dissident uranium investor Richard Magides a moral victory over Rio Tinto, ruling the mining heavyweight’s move to take control over Energy Resources of Australia was made in unacceptable circumstances, but ruling it can go ahead anyway.
Mr Magides, through his privately owned vehicle Zentree Investments, was seeking to block a Rio-backed entitlements issue from ERA designed to fund its estimated $925 million rehabilitation obligations at the Ranger uranium mine in the Northern Territory.
But the vehicle Rio offered up to meet its promise to bankroll the clean-up, underwriting a $476 million entitlements issue by ERA, would have diluted the company’s minority shareholders into irrelevance – prompting a complaint by Mr Magides to the takeovers panel.
Under the terms of the 6.13 for one entitlement offer, issued at 15c a share, the Singaporean businessman had the right to maintain his 15.9 per cent stake in ERA – but it would cost about $75.9 million to do so, and still leave Rio in a dominant position on the register with no intention of allowing Ranger’s life to be extended beyond 2021
And if none of the minority holders took up their shares, Rio would have moved from 68.4 per cent of ERA to 95.6 per cent, allowing it to invoke Corporations Act provisions and mop up the remaining shares without paying a premium.
On Wednesday the takeovers panel ruled the Rio underwriting offer was made in unacceptable circumstances, saying ERA had few options but to accept’s Rio’s ultimatum it would only fund the rehabilitation through a dilutionary share issue.
The panel said ERA had failed to manage potential conflicts of interest on its own board regarding the Rio offer, and “insufficient measures were taken to ensure the independence of a committee formed to evaluate, negotiate and if thought fit approve any funding support agreement with Rio Tinto”, noting a Rio-appointed executive director had attended meetings of the independent panel assessing the funding proposals.
ERA also failed to properly disclose the effect of the Rio offer – that it would likely leave the mining giant with more than 90 per cent of ERA shares – and failed to explain Rio’s future intentions for the company, the panel said.
But in a major blow to Mr Magides, the panel declined to call Rio and ERA’s bluff on claims that blocking the raising risked sending the uranium miner into insolvency and stopped short of ordering the two companies back to the drawing board, allowing the entitlements issue to go ahead if additional disclosures are made to minority shareholders.
The panel also ordered Rio not to use its position to force minority shareholders to sell for at least the next six months, and possibly beyond.
The decision leaves Mr Magides and other shareholders consigned to holding a tiny minority of ERA shares, waiting either for Rio to make a fair offer for their holdings or possibly revive the mine at a future date – something Rio has said it will not do.
Mr Magides said he could not comment on the outcome on Wednesday, saying he was still considering the detail of the decision. But he praised the work put in by the panel, saying it had been working under difficult circumstances.
“The panel has been highly professional, diligent and thorough in reviewing hundreds of pages of submissions from all parties,” he said.
“The results of their findings maybe not to full satisfaction of any of the affected parties but should be respected as an independent impartial assessment.”
In a statement on Wednesday ERA said it accepted the decision and would not seek a review.
But the company said it “rejects any suggestion that potential conflicts of interest have not been sufficiently managed at any time during the process of developing a funding solution.”
Rio declined to comment on Wednesday.