THE Takeovers Panel has reversed an earlier panel ruling on Bowen Energy and has made a declaration of unacceptable circumstances, which could end up unwinding the outcome of the recent takeover bid by the Indian steel maker, Bhushan Steel.
A review panel has found there were material deficiencies in the technical expert's report (contained in the independent expert's report) and that as a result the acquisition of control over Bowen shares had not taken place in an efficient, competitive and informed market and Bowen shareholders were not given enough information to enable them to assess the merits of the bid.
The review panel has ordered independent directors of Bowen to obtain a report from a new independent expert, and a new technical expert if one is necessary to enable a valuation of Bowen (as at the same date as the earlier valuation). The experts must be satisfactory to the corporate regulator, ASIC.
Bhushan completed an on-market cash offer of 14c a share on August 26, which lifted its shareholding in Bowen from 22.3 per cent to 58.8 per cent.
If the new expert considers the takeover offer was fair and reasonable Bhushan can retain its shares. If not, Bhushan must give those Bowen holders who accepted the offer the opportunity to buy back their shares at the offer price of 14c.
That could reduce Bhushan to less than a controlling holding. However, given that Bowen shares last sold at 13c it's unlikely that many former holders would take advantage of the opportunity to buy back their shares.
There has been dissension in Bowen for some time.
In February last year Bowen entered into two joint ventures with Bhushan, under which the Indian steelmaker would acquire 85-90 per cent of some of its coal exploration tenements in Queensland's Bowen Basin.
In September last year Bhushan agreed, subject to shareholder approval, to take a placement of 100 million Bowen shares at 32c a share -- a premium to the then market price -- and 25 million options exercisable at 20c a share, which would raise $32m and enable funding of exploration of the joint-venture tenements.
Shareholder approval was required because the placement would increase Bhushan's shareholding to a controlling 645.7 per cent, and exercise of the options would lift it further, to 71.23 per cent. Shareholder approval was to be sought at the annual meeting in December last year and an independent expert's report was obtained from WHK Horwath Corporate Finance, which valued Bowen shares in a range of 22.46c-27.55c a share. Included was a technical expert's report from Minnelex Pty.
However, shareholders were advised at the annual meeting that the board had received a letter from a shareholder making certain claims about the adequacy of the expert's report and consideration of the placement was deferred. Bhushan and Bowen subsequently cancelled the subscription agreement.
In March, Minnelex advised Horwath that it had made errors in the valuation of Bowen's coal projects. Horwath advised Bowen and revised its valuation of Bowen shares to between 8.13c and 11.37c a share. Horwath provided a full supplementary statement to be made available to shareholders, ASIC or ASX, as required, but it was not disclosed by Bowen.
In April, dissidents requisitioned a meeting to remove the six-member board and appoint two directors. Bhushan has four representatives on the board, including managing director Nittin Johari. The meeting was held in June and the dissidents failed, but there was acrimony over a swag of proxies that were ruled invalid because they weren't sent to the company.
The dissidents immediately requisitioned another meeting to replace the board. Shortly after, Bhushan launched its on-market bid. The independents again obtained an expert's report from Horwath, which included a technical expert's report from Minnelex, dated July 23, and this time Horwath valued Bowen shares in a range of only 3.53c to 5.51c a share.
A Bowen shareholder, Macrae Holding (WA), went to the panel arguing that the independent expert's report was questionable and that the expert should not have been engaged, given the earlier errors, and that the valuation methodology employed was not good practice. However, the initial panel was not satisfied that the expert's report was materially deficient to a degree that would lead to an uninformed market for Bowen shares.
Macrae sought a review of the decision and the review panel yesterday found that there were material deficiencies in Minnelex's report regarding some of the values found, some of the logic involved, and compliance with ASIC regulatory guide 111 and the VALMIN code.
Apparently the review panel considered the same material as the initial panel, but came to a different conclusion.
The initial panel comprised Peter Hay, Vikki McFadden and Mark Paganin (sitting president) and the review panel comprised Catherine Brenner, Rodd Levy (sitting president) and Andrew Sisson.
Macrae also contended that Savni Holding, which owns 16.6 per cent of Bowen, is an associate of Bhushan. ASIC submitted it was open to the panel to infer association and noted that Savni's initial substantial shareholding notice had Bushan Steel's name stamped upon it, while there were suggestions that Johari gave instructions in relation to Savni's voting power over Bowen.
The initial panel considered that was not sufficient evidence to take the issue further. The review panel said that it was still making inquiries in relation to an association between Savni and Bhushan. Of course the panel does have the compulsory powers that are available to ASIC, and it's arguable that if the corporate regulator considers there may be an association then it is the appropriate party to pursue the matter.
BWN Price at posting:
14.0¢ Sentiment: Buy Disclosure: Held
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