Time to buy in, page-21

Mirren,

I like doing a bit of homework even when I enter penny stocks. So reading the terms of the Citadel JV I found this disclosure.

"Upon Rio Tinto earning a 51% interest in the Citadel Project the parties will become parties to a Joint Venture Agreement in terms already agreed. The Joint Venture Agreement is in standard terms except for the inclusion of a pre-emptive right arising on a change of control of either party or their holding company, whether listed on a stock exchange or otherwise. If a transaction is announced or a party is made aware of an offer which could constitute a shareholder acquiring more than 40% of a party or its holding company, then a right of pre-emption in respect of that party’s joint venture interest arises in favour of the other party. The other party is entitled to purchase the joint venture interest at the value of the consideration offered (on a 100% basis) less the value of any other assets held by the change of control party."

I'm not exactly sure of the meaning but the way I interpret it is that if either party gets taken over or loses control of more than 40% of its shares then the other party has a right to purchase that parties interest in the JV at a value equivalent to the offer price once the value of the other assets of that party are factored in. To me this seems like an extremely messy arrangement if I understand it right as it depends on a lot of valuations which I find are normally extremely unreliable or biased somehow and I don't understand what constitutes at the value of the consideration offered (on a 100% basis) less the value of any other assets held by the change of control party when you are taking about only a 40% controlling interest. I suppose it means they use the offer price in the case that the offer results in only 40% control being gained when the offer goes unconditional?????? Can you imagine how difficult this would become if it was RIO getting taken over and AZY wanted to assert their pre-emptive rights over the JV. The best way of valuing something is through a willing buyer and a willing seller exchanging an asset at arms length, anything other than that is meaningless IMO. I can't see how an arrangement like this can work in practice to deliver a fair outcome. What's more it prevents a bidding war for the asset. If I'm right RIO basically has the asset sown up as they have the first right to it if someone comes to take over AZY. That's a fair disincentive for any suitor that is looking at the company. They could only takeover the company based on their interest in the non-Citadel assets and those would need to be valued some how relative to the Citadel JV unless RIO decided it wasn't interested in exercising its rights. Well that's the way I understand it, could be wrong though. Eshmun