Thanks to
@stealth10 for mentioning the excellent Datt Capital piece on this SFR legal development
https://www.datt.com.au/blog/adriatic-metals-and-sandfire-resources-a-complex-relationship
The end of Datt’s article mentions 8 great questions which seem relevant to the understanding of this issue. I’m going to try to elaborate what I understood from those same 8 points mentioned by Datt below .
There are 3 important pieces of relevant ASX info to keep in mind, which Datt has also mentioned –
a/ ASX listing rule 6.18,
b/ ASX new listing rule 10.11.3 (from Dec 2019) and
c/ point 2.11 of guidance note 25 dealing with ASX’s approach to granting waivers of listing rule 10.1
1/ What is the specific basis for Sandfire's claim given that they have participated in every capital raise conducted by Adriatic Metals?
As per ASX listing rule 6.18, an option must not be exercisable over a percentage of the entity’s capital.
https://www.asx.com.au/documents/rules/Chapter06.pdf
Prior to Dec 1, 2019,
ASX used to give waivers from above listing rule 6.18 to permit companies like ADT to give an anti-dilution right to strategic security holders (like SFR).
Datt has linked the May 1, 2018 announcement showing that ADT got into a strategic relationship with SFR and also the Aug 30, 2018 announcement of grant of ASX waiver from above listing rule 6.18
With the grant of the ASX waiver from listing rule 6.18, SFR could thus get an option over a percentage of ADT’s capital or an anti dilution right, to maintain their percentage of capital. Obviously, they would have to subscribe to capital at the then prevailing price,which they’ve done as seen below.
As Datt has mentioned, SFR seems to have participated in both the capital raise announced on Nov 20, 2018 (maintining its 7.7% stake) and Oct 30, 2019 (maintain their pro rata interest). Refer relevant portion of 2 announcements highlighted in red block by Datt
So, as Datt questions, really what is the basis for SFR’s claim considering that they indeed seem to have participated in both the capital raises ADT have had till date, at the prevailing price of capital raise?
2/ Have Sandfire submitted a waiver application to the ASX, given the onus is on the benefiting party to apply for the waiver? If so, has this waiver application been rejected and in what form?
So above in point 1, we see that SFR got a waiver from listing rule 6.18 in 2018 itself
However on Dec 1 2019, ASX amended listing rules.
A new listing rule 10.11.3 came about, and IMO here in question 2, Datt is referring to waiver from this clause 10.11.3.
https://www.asx.com.au/documents/rules/Chapter10.pdf
https://www.kwm.com/en/au/knowledge...rules-reforms-summary-of-key-changes-20191106
As also mentioned below -
“From 1 December 2019, issues of equity securities to 10% substantial holders who have nominated a director to the listed entity's board in accordance with an agreement will require security holder approval under listing rule 10.11. This will capture any anti-dilution rights proposed to be given to those investors.
Subsequently, ASX will no longer issue anti-dilution waivers under listing rule 6.18 to strategic investors of that kind. Entities that have the benefit of a listing rule 6.18 waiver should approach ASX to discuss its preparedness to grant a concurrent waiver of the new listing rule 10.11.3.”
https://www.claytonutz.com/knowledg...nges-the-asx-already-has-to-its-listing-rules
This seems to apply to SFR. Datt has also linked 2.11 (which contains heaps of useful info.) of guidance note 25 on ASX listing rules, which deals with issue of shares to persons of influence. Whole guidance note 25 is below.
IMO, ADT holders would do well to read 2.11 (linked by Datt) in its entirety which gives a good understanding of various dynamics of the topic
https://www.asx.com.au/documents/rules/gn25_issues_of_equity_securities.pdf
We see there that from Dec 1 , 2019, ASX will no longer grant those anti dilution waivers from 6.18 and entities like SFR holding them would also have to
apply to ASX for a concurrent waiver from listing rule 10.11.3 (Refer red block by Datt).
So Datt’s question is about whether SFR have made this specific application (and what was the outcome) for waiver after Dec 1, 2019
3/ Given the litigation has been initiated by Sandfire against Adriatic, has the strategic relationship between the two companies effectively ceased? How long has this been the case for and at what point did it effectively cease?
Question raised by Datt as to whether any strategic relationship even exists now
(considering litigation) and since when it might have ceased.
Refer waiver from 6.18 received (announcement linked by Datt – Aug 30, 2018) where it states that anti dilution right lapses if the strategic relationship ceases or
changes in a way that it effectively ceases.
Considering the increasingly hostile relations developing, ADT might argue that the strategic relationship has ceased since sometime.
Also refer the part of 2.11 of guidance note 25 blocked in red by Datt where it mentions that before granting waiver from 10.11.3,
ASX will need to be satisfied that there is still a genuine strategic relationship.
Can we honestly say that there is still a genuine strategic “relationship” ? More like a strategic divorce right now
https://www.asx.com.au/documents/rules/gn25_issues_of_equity_securities.pdf
4/ Given that ASX listing rule 10.11 is considered as the fundamental protective clause for minority investors, is it appropriate that this rule is waived to the potential detriment of Adriatic's minority shareholders, especially if the strategic relationship appears to have effectively ceased?
At start of "2.11 of guidance note 25", it is mentioned that Asx regards listing rule 10.11 as one of the
fundamental protections afforded to investors. Listing rule 10.11 aims to protects investors from harm and ASX will only give waiver if the harm is not present.
So, it is seems that ASX will possibly analyse a bigger picture before granting this exemption.
https://www.asx.com.au/documents/rules/gn25_issues_of_equity_securities.pdf
Another interesting point IMO is the degree of involvement by the concerned company (in our case ADT) in the application by waiver. Refer recent case below of MMI and Greenstone, as an example
http://www.aspecthuntley.com.au/asxdata/20200417/pdf/02225959.pdf
We see there that MMI is like ADT (investee company) while Greenstone is the strategic investor (like SFR). The whole waiver granted mainly addresses MMI, and it
seems (not sure) like that the application was done with the full co-operation of MMI. I’m just wondering (not sure) as to whether the application for waiver would have been refused if MMI had not co-operated. After all, protection of minority investors is an important consideration.
5/ Why is Sandfire, a company worth almost $1 billion, fighting over $8 million worth of stock that it is purportedly owed?
This question from Datt is possibly relevant from point of getting exemption from listing rule 10.11.3 where ASX might want to analyse
bigger picture, and all facts involved.
6/ What was the reason for Sandfire removing their nominee director from the board of Adriatic? Was it to notionally circumvent ASX listing rule 10.11.3 - substantial (10%+) holders with board representation?
I think Datt is talking about the fact that
10.11.3 was introduced specifically for companies with more than
10% holding like SFR that had a director on board.
https://www.asx.com.au/documents/rules/Chapter10.pdf
With presence of their nominee director, John Richards, it seems that listing rule 10.11.3 introduced in Dec 2019 would in all probability apply to SFR
7/ Why has Sandfire been non-compliant with general ASX requirements regarding substantial shareholder disclosures, especially around December 2019? What is Sandfire's current interest in Adriatic Metals?
Datt’s point is possibly relevant from point of getting exemption from listing rule 10.11.3 where ASX might want to see
bigger picture.
Also relevant to determine
how much shareholding influence SFR has had since December 2019,
exactly when the new listing rules came into place.
Current interest might indicate
further eventual intentions.
Also when talking about anti-dilution rights, then obviously
full transparency is needed on shareholding interest.
8/ Is Sandfire's eventual intention to control or takeover Adriatic or Adriatic's projects in some form at some point in the future?
Relevant from point of getting exemption from listing rule 10.11.3 where ASX might want to see
bigger final picture, and determine that minority interests are protected now and eventually, before granting any anti-dilution rights.
9/ Other miscellaneous points
I’ve just tried to elaborate on some of the 8 excellent questions posed by Datt abave. As Datt mentioned, that is just their opinion and thoughts and not investment advice to be relied upon.
So please DYOR, as nothing in this comment should be interpreted as legal advice, investment advice, etc.
We are all trying to make sense of this sudden development and the impact on our investment, if any, and some analysis and conclusions could definitely be wrong.
Some other thoughts, which many others also have shared over last few days -
a/ At first glace, seems like an
unnecessarily hostile stance by SFR. Really unnecessary as many ADT shareholders have long been somewhat open to an eventual friendly takeover by SFR.
b/ At first glance, seems like a study of the agreement might not be too difficult for lawyers and court, and hence
litigation might not be prolonged, as full information would be available to them.
c/ If at all,
SFR is entitled to shares, they would still
likely have to pay some amount which would likely at least cover any of ADT’s legal costs. Nevertheless, as I’ve recently mentioned, ADT must
pay a lot of importance to its cash balance. Contingencies like this could come about anytime, putting some temporary brakes on our much bigger expansion plans.
d/ Potential takeover of ADT has been discussed since some time . If it happens, it now increasingly looks like it is going to be a
hostile one, which is sad and very unnecessary. I recently tried to see it from point of view of both ADT and SFR to see some middle ground
https://hotcopper.com.au/threads/an...ohn-richards.5492211/page-31?post_id=45807054
e/ A lot of long term
ADT shareholders seem to have been antagonized by this latest development which might now make it more difficult for SFR to takeover ADT if they are interested
f/ SFR could have purchased shares during the recent March covid crash at less than 80 c. In point 2.11 of guidance note 25, it is specifically mentioned that the strategic holder has the option to buy on market and therefore should not need a separate anti dilution right
g/ If all this pertains to anything besides upcoming Tethyan deal, then there seems to be a
pretty big time lag between SFR’s supposed entitlement to shares and finally claiming it now on July 31, 2020
h/ I mentioned on July 12 that SFR price is closely linked to copper and that copper could face strong resistance around $3
https://hotcopper.com.au/threads/an...ohn-richards.5492211/page-31?post_id=45807054
Aug 2 update is that copper one year high is now exactly 2.993 and currently 2.86, and copper hit its head at USD 3, as I anticipated
https://au.investing.com/commodities/copper
https://www.finviz.com/futures_charts.ashx?t=HG&p=d1
So copper price could be another factor for SFR’s recent share price slump. However, IMO, several market participants might have been pricing an eventual ADT takeover in SFR's share price since some time, and I would not be surprised if the legal case had at lease some impact on SFR's share price on Friday.
Please DYOR. As mentioned, we are just trying to make sense of this latest development and additional news would clarify a lot.
(20min delay)