kick out the directors

OMH has governance issues, but ConsMin's tilt at board a long shot
Bryan Frith From: The Australian July 27, 2011 12:00AM

THE latest spat between Ukrainian billionaire Gennady Bogolyubov and the board of the manganese miner OMH Holdings highlights deficiencies in the takeover rules introduced by the company 2 1/2 years ago.
Bogolyubov's Consolidated Minerals, also a manganese miner, has been at war with OMH since its offshoot Stratford Sun acquired an 11.35 per cent stake in the miner in 2008.

OMH, which has been listed on the ASX since 1998, is incorporated in Bermuda where there is no law regulating the takeover of companies. That didn't trouble OMH until Bogolyubov picked up a shareholding and requested a board seat (which was refused on the grounds that ConsMin was a competitor). OMH then considered necessary to introduce takeover rules for the benefit of the shareholders. That was despite Bogolyubov outing himself and indicating he wanted to work with OMH and wasn't considering a takeover.

OMH obtained shareholder approval to amend the company's by-laws to introduce rules governing takeovers which are largely based on Australia's takeover provisions. Thus, a party is prohibited from acquiring more than 20 per cent of OMH without first making a takeover offer to all holders. During the bid period the bidder cannot give selective benefits to some target holders and the offer must be open for at least one month. Bids can only be varied by improving the offer consideration or extending the bid period.



However, the changes relied on the board for enforcement. There is no role for ASIC in the regulation of the company's takeover procedures; nor do bidders or shareholders have the right to seek recourse to the Takeovers Panel. OMH remains a Bermudan company, subject to Bermudan law, and outside the jurisdiction of ASIC and the Australian takeover laws.

Moreover, the board hassweeping powers to allow a party to acquire more than 20 per cent of the company if it has the "prior approval" of the board. That is completely at odds with Australia's takeover laws.

Bogolyubov accused OMH at the time of "cherry picking" the Australian takeover laws and that the real motive behind the takeover package was to entrench the incumbent board by making it difficult for a party to launch a hostile bid.

Bogolyubov has now escalated his fight with OMH by requisitioning a meeting of shareholders under Bermudan law to vote on removing two directors, the executive chairman Low Ngee Tong and Tan Peng Chin, and to replace them with two directors independent of ConsMin -- merchant banker Malcolm McComas and a former leader of the NSW Liberal Party, Peter Debnam.

OMH has 21 days in which to convene the meeting and if it fails to do so, Stratford Sun can call the meeting. OMH says it will comply with its obligations and will assess the actions of Stratford Sun and respond to shareholders and the market in due course.

ConsMin argues that the board had led the company down a path of "systemic value destruction" and has adopted strategies that have consistently failed to deliver growth and has presided over a period of significant share decline.

In particular, OMH's share price had fallen more than 35 per cent since March -- from $1.38 to the current price of 98c -- which followed the company's proposal for a dual-listing on the Hong Kong Stock Exchange accompanied by a large issue of shares and employee options, which would be massively dilutive to existing shareholders.

That required amendments to the by-laws to make them consistent with the listing rules of Hong Kong exchange, which required a 75 per cent vote in favour by OMH shareholders. In the event it fell short at 66.29 per cent but there was also a significant vote against other resolutions -- 35 per cent against the share issue, 45 per cent against the employee share option plan and even 23 per cent against the re-election of two directors.

OMH nevertheless sought to press on with the dual-listing. The board called it off early this month, citing volatile and uncertain market conditions but it's likely the failure to bring the by-laws into line with the Hong Kong listing rules was a deal breaker.

OMH is now considering a demerger of its smelting and marketing businesses to concentrate on the Bootu Creek manganese mine. ConsMin argues that that contradicts current market tendencies of vertical integration and would weaken the company's strategic position.

ConsMin contends that for a long time OMH has had poor corporate governance and a lack of transparency and a demerger would create conflicts of interest between two boards and management and would be "a potential minefield of poorly disclosed related party dealings and minority shareholder mistreatment in one or other entity".

ConsMin has also repeated concerns that the board and senior management have not been diligent in identifying key stakeholders. It has previously claimed that the shareholding may be "overly concentrated" in the hands of a few shareholders and they may be associated with, or supportive of, Low Ngee Tong and his wife, Heng Siow Kwee, who is a joint company secretary of OMH.

Low has disclosed a holding of 10 per cent of OMH and his wife has a disclosed holding of 9.5 per cent, an aggregate of 19.5 per cent, just below the bid threshold.

It's suggested that at least 50 per cent of the company's shares are held through nominees and trust arrangements many of which ConsMin suspects may be associated with Low and Heng.

ConsMin has written to ASIC and the Hong Kong exchange on its concerns and has been seeking information about a number of shareholdings, including those of Newtimes Marine, Lai Shun Holdings and Lowther Resources, but without success.

The problem is that OMH only partially incorporated the tracing provisions of the Corporations Act. Section 672A gives companies, gives companies and ASIC the right to issue tracing notices to parties requiring full details of their relevant interest and those of their associates. Moreover, shareholders can require ASIC to issue tracing notices unless the regulator considers it would be unreasonable to do so in all of the circumstances.

Many companies regularly conduct tracing notices and the responses are made available for shareholders to inspect on request. Shareholders can therefore be as informed as is the board. However, under the amendments to the by-laws the power to issue tracing notice lies solely with OMH and, if it does issue notices it is under no obligation to make the responses available for ConsMin, or any other party, to examine.

If ConsMin is right about its suspicions of shareholder concentration, then it's unlikely it will receive any co-operation from the OMH board. But ConsMin was encouraged by the shareholder vote in April, which suggests there is a significant, and perhaps growing, level of shareholder discontent. Even so its tilt at the board is probably a long shot.