OK GangTime for a perspective on how the BCI deal will play out...

OK Gang

Time for a perspective on how the BCI deal will play out in front of the Panel. Apologies for the long post, but spotting opportunities for "Takeovers Panel Arbitrage" is a personal passion of mine - last year the Paladin bid for NGM Resources was a stellar opportunity on this front. 60% returns in a week for those brave enough to pick the panel decision correctly on that one.

But Back to BCI. Here goes:

ISSUE NUMBER ONE: Is the Panel going to accept that it has jurisdiction over the matter, given that it is a Scheme of Arrangement rather than a Takeover. This is almost certainly going to conclude as a YES - Brian Frith has written on this, but it all comes down to recognising that ASIC / The Panel see no practical differences between mechanisms for undertaking change of control of transactions.

THEREFORE, THE FUNDAMENTAL ISSUE AT STAKE HERE is the question of whether Regent Pacific should be permitted to walk away from the Scheme.

THE FIRST RULE OF TAKEOVERS is that a bidder is required to go forward with a takeover with the once a deal has been announced. OF course, the bid may ultimately be pulled, but that will only be if a SPECIFCALLY IDENTIFIED CONDITION OF THE BID IS BREACHED, such as the ASX200 index falling below a specified level, or a minimum acceptance condition (usually 90%) not being achieved.

IN SHORT, IF YOU SAY THAT YOU ARE GOING TO BID, YOU HAVE TO GO THROUGH WITH IT.

AND IT IS ONLY ACCEPTABLE TO HAVE BID CONDITIONS THAT ARE NOT WITHIN THE CONTROL OF A BIDDER.

eg. It would be disallowed to have a bid condition that "This takeover offer is conditional on the chief executive officer of the bidder not deciding to cancel the offer prior to the minimum acceptance condition being satisfied"

WHICH IS ENOUGH BACKGROUND TO CONSIDER THE PRINCIPLES IN PLAY IN THIS SITUATION:

Regent Pacific is looking to withdraw from the Scheme. I am not aware of any specific claims made by Regent Pacific, except to note that it believes that the Scheme Implementation Agreement gives it a right to walk. There has been plenty of conjecture that Regent Pacific is seeking to hang its hat on the reported comments of Cons Minerals that it does not intend to support the Scheme, and that Regent Pacific is effectively saying "oh well, the scheme is doomed. Therefore, there's not much point wasting further time and effort on it. We are heading home."

I think that there are just two key points to understand in considering whether Regent Pacific's approach is likely to be persuasive in front of the Panel, as well as whether there are any other ways that Regent can wriggle out of its obligations:

1) THE SCHEME IMPLEMENTATION AGREEMENT - as lodged with ASX last week - DOES NOT PROVIDE REGENT WITH A BLANKET RIGHT TO WALK AWAY. I've read it pretty thoroughly, and I can see no right for Regent to do ANYTHING OTHER THAN TO CONTINUE DOWN THE PATH OF PUTTING THE SCHEME BEFORE REGENT SHAREHOLDERS, unless one of a number of specified circumstances (set out on page 27 of the SIA) is met. However, the one TERMINATION RIGHT that is troubling to BCI shareholders wanting to see a deal go through, relates to REGENT PACIFIC's right to walk away in the event that REGENT PACIFIC directors change their recommendation in relation to the scheme. More on that at point 2:

2) THE DEVIL IN THE DETAIL in the SIA relates to the need for the SCHEME to be approved by Regent Pacific shareholders (a requirement under HOng Kong (?) governing law). This is unusual, and while REGENT Pacific has committed to RECOMMEND the scheme to its shareholders, there is a discretion to change the recommendation BUT ONLY IN LIMITED CIRCUMSTANCES. Take a look at Section 10.2 on Page 20 - Regent Pacific board can only change its recommendation if it has determined "in good faith, having received a specific written opinion from a Senior Counsel on the matter, that its fiduciary and statutory obligations to Regent Pacific require it do so."

AND THAT's THE KEY. . . .has there been a change of circumstances such that it would be a breach of fiduciary/stautory obligations to continue with the scheme?? I REALLY DON'T THINK SO.

The upshot of this is that:

1) I believe the Panel has jurisdiction in this matter and has already installed a sitting Panel to consider the matter.

2) My analysis suggests that Regent Pacific must be relying on its right to change its recommendation on the scheme as the basis for claiming a right to withdraw from the scheme overall.

3) I don't find Regent Pacific's case at all persuasive, and think it will be required to continue with the scheme process. As part of this, I expect that the Panel will rule that nothing has happened to date that would give the Regent Board the right to validly change its recommendation in relation to the scheme.

4) This leaves Regent Pacific required to at least go through the motions of the Scheme process. However, the deal could still be stymied if for example:

a) Regent Pacific shareholders choose en masse to act IN DEFIANCE of the board's official recommendation and to vote AGAINST the deal. [I haven't looked at the Regent Pacific shareholding structure to assess whether there are any wrinkles here to be taken into consideration]; or

b) Consolidated Minerals continues to oppose the deal.