de crespigny sees 'very exciting' future for mim, page-2

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    team de crespigny ready to come on board Team de Crespigny ready to come on board if MIM vote fails
    May 27 2003
    By Stephen Bartholomeusz

    An already unusual takeover has become even more bizarre with Robert Champion de Crespigny's weekend announcement that he is assembling a team of volunteers to displace the board of MIM Holdings if small shareholders vote down Xstrata's $5 billion takeover scheme.

    MIM's board and Xstrata were already struggling to blunt the impact of a campaign, led by institutional shareholder Platinum Asset Management and supported by some Queensland politicians and brokers, to vote down the scheme.

    MIM's chief executive, Vince Gauci, having expressed his opposition to the bid in the scheme documents, isn't actively campaigning but is the silent centrepiece of the "no" campaign.

    De Crespigny has raised the already massive stakes even further, arguing that if the scheme is defeated "it would be extraordinary" if the MIM board didn't resign. The vote, he is reported to have said, is really an election for the board.

    That's an interesting development in the debate over corporate governance, given that de Crespigny appears to be arguing that the MIM non-executives' "sin" is to have a different view to their CEO.

    It is even more interesting that de Crespigny is effectively arguing for a radical change in corporate governance so that the vote of each shareholder is given equal weighting, regardless of the number of shares held. That would send shivers down the spines of most directors - and delight small shareholders.

    More intriguing than de Crespigny's tactics, however, is his motivation. He built Normandy, Australia's biggest goldminer, from nothing before orchestrating the auction that sold it to US giant Newmont for a fabulous price.

    He is an astute strategist and his intervention in the MIM takeover smacks of something more than simple public-mindedness or a conversion to economic nationalism.

    The battle for MIM has, at this stage, to be a battle for the hearts, minds and votes of its small shareholders because Xstrata - mainly as a result of the scale and nature of its funding - chose to pursue the bid through a scheme of arrangement.

    Schemes have to meet two tests. They have to attract the support of 75 per cent of the shares voted at the scheme meeting and 50 per cent of the shareholders who vote, whether in person or by proxy. It is that latter test that Platinum and now de Crespigny are focused on and have a real chance of winning.

    De Crespigny has raised the already massive stakes even further . . . The vote, he is reported to have said, is really an election for the board.
    It is unclear why the MIM board would feel obliged to resign if, for instance, it gained the support of 75 per cent of the company's capital for the scheme, but it was then voted down by the weight of small shareholder numbers.

    If that were the outcome, it is also difficult to see how the support of shareholders representing what will probably be a relatively small proportion of MIM's capital would provide any kind of mandate for a competing slate of directors - unless de Crespigny were able to marshall a new and powerful support base behind his agenda. If the scheme is defeated, the outcome is going to be very messy and extremely acrimonious.

    The Xstrata offer of $1.72 a share values the equity component of the scheme at about $3.5 billion.

    Yesterday MIM shares, spooked by the prospect that the scheme might fail, were trading at $1.54. If the market's fear becomes reality, the shares could be expected to trade substantially lower.

    The extent of the inevitable decline in the MIM price will be exacerbated by the nature of its register. Ever since the negotiations with Xstrata were revealed last year the market in MIM shares has been dominated by arbitrage activity. Arbitrageurs hold somewhere between about a third and a half of its shares.

    While it would probably be quite a useful lesson for arbitrageurs to be reminded that the full description of their role in the markets is "risk arbitrage", any satisfaction other MIM shareholders might get from teaching the speculators a costly lesson would be tempered by the reality that those costs can't be quarantined to the arbitrageurs.

    The other 50 to 70 per cent of the register, including small shareholders, would also be hammered.

    If the scheme fails the arbitrageurs won't hang around for two or three years to discover whether Gauci is able to deliver on his view that MIM is worth more than Xstrata is offering.

    Unless there is some immediate prospect of another offer they will dump their holdings and the MIM share price will be trashed.

    Before the talks with Xstrata were disclosed, MIM shares were trading at $1.20 and below without the arbitrage overhang that now exists, when exchange rates were significantly more favourable and before the latest earnings downgrade.

    That's an unpleasant prospect for current MIM shareholders but, potentially, an enticing one for prospective shareholders.

    Most of MIM's institutional shareholders sold out to the arbitrageurs at close to $1.70 a share.

    They've got their takeover price already and could, the de Crespigny camp may believe, be convinced to buy back in at pre-bid levels, particularly if they believe there is a possibility of further strategic activity.

    If Xstrata's offer is defeated at the scheme meeting it could try to return with a conventional offer, although the equity it has raised for the scheme may have to be returned to its subscribers.

    MIM also, however, talked to a range of other potential suitors before the board decided Xstrata's offer was the most attractive. Phelps Dodge (said to have been supported by MIM management), WMC and others are said to have been interested, but their offers would have involved large amounts of scrip.

    If Xstrata were sidelined, an interesting "reverse arbitrage" could open up.

    The conventional institutional shareholders have already taken their profits and received a takeover premium on their MIM holdings. De Crespigny might be able to convince them to buy back in at the probable pre-bid levels, or less, at the arbitrageurs expense.

    If there were subsequent strategic activity - if Phelps, for instance, were to take advantage of Xstrata being forced from the field - the lure of another bid premium, even if the offer were worth less than Xstrata's or involved foreign scrip, would be potent.

    The institutions could "double dip" at the arbitrageurs' expense. For anyone who wasn't an existing MIM shareholder, that would be a near riskless play.

    From The Age
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