October 18, 2012 (TSR) – For more than two centuries, the Rothschild name has stood for a deft touch in European cross-border finance, as well as representing great wealth and influence.
Today, the family name, one of Europe’s banking dynasties, has become ensnared in a nasty dispute after a powerful family in Indonesia appears to have outmaneuvered Nathaniel Rothschild, the five-times great-grandson of the dynasty’s founder.
After an inauspicious start as a young investment analyst at Gleacher in Manhattan in the mid-1990s, Mr. Rothschild’s rise as a moneymaker in his own right has been fairly rapid. He was co-chairman of the hedge fund Atticus Capital before striking out on his own and engineering a series of international deals.
In late 2010, he announced what was expected to be his most ambitious project yet, a $3 billion deal with the Bakrie family, an Indonesian dynasty whose vast interests include both mining and politics, to create the London-listed mining giant Bumi.
“We’ve announced the creation of an Indonesian coal champion,” Mr. Rothschild said at a news conference at the time.
That partnership now lies in ruins.
Mr. Rothschild, a 41-year-old British financier, has resigned from Bumi’s board amid allegations of financial misconduct at some of the company’s Indonesian subsidiaries. The owners have been caught in a yearlong feud over the running of the company. And questions have been raised about the corporate governance that allowed Bumi to trade on the London Stock Exchange.
In the latest round of infighting, Mr. Rothschild — a descendant of Nathan Mayer Rothschild, who helped finance the British victory over Napoleon at Waterloo — has accused Samin Tan, Bumi’s chairman, of not protecting the rights of minority shareholders.
“I have lost confidence in the ability of the board to stand up for investors,” Mr. Rothschild, who owns roughly a 12 percent stake in the company, said in a letter announcing his resignation from Bumi’s board.
In response, the Bakries said Mr. Rothschild should return his shares and other financial benefits connected to the mining company.
“What a disappointment Mr. Rothschild has been to us,” said Christopher Fong, a spokesman for the Bakrie family.
Mr. Rothschild is insisting that any decision about Bumi’s future be delayed until an investigation is finished into ostensible financial misconduct at its subsidiaries, according to a person with direct knowledge of the matter who spoke on the condition of anonymity because he was not authorized to speak publicly.
The alliance with the Bakries had been part of a bet by Mr. Rothschild on the surging demand for coal by fast-growing economies in Asia. He raised £707 million, or $1.1 billion, in the 2010 initial public offering of Vallar, a London-listed investment company that was created to make acquisitions in the natural resources sector.
Later that year, Mr. Rothschild organized a cash-and-stock deal worth $3 billion that would give his company access to a number of Indonesian coal mining assets. The takeover also gave the Bakries a controlling stake in Bumi, the renamed Vallar that remains listed in London.
Since the deal was completed, not much has gone right for Bumi, as Mr. Rothschild’s effort to profit from an expected commodities boom has floundered.
With demand for coal falling because of the global financial crisis, the company’s share price has plummeted more than 80 percent over the last 18 months. In the first half of this year, the company reported a net loss of $106 million, a slight improvement on the $296 million loss in the same period last year. The value of Mr. Rothschild’s own investment of $148 million has more than halved, to $86 million.
Mr. Rothschild and his Indonesian business partners also have clashed over how the company should be run.
In a terse letter to the board late last year, Mr. Rothschild called on Bumi’s chief executive at the time, Ari Hudaya, to resign. Mr. Rothschild said the company’s head had failed to attend board meetings, dismissed investors’ questions and neglected his duties as chief executive.
“It has become abundantly clear that he is neither fit nor suitable to carry on as C.E.O.,” Mr. Rothschild said.
The Bakries, however, have been calling the shots.
Late last year, the family sold a 24 percent stake in Bumi to Mr. Tan, a fellow Indonesian mining mogul, for $1 billion. The deal helped the Indonesian dynasty to repay outstanding loans owed to a consortium of lenders led by Credit Suisse.
After calling a shareholding meeting to reshuffle Bumi’s executives, Mr. Tan took over as chairman, while Mr. Rothschild was reduced to a nonindependent director.
Controversy has continued to follow the ill-fated partnership.
Last month, Bumi announced an investigation into accusations of financial misconduct totaling $500 million at several of its Indonesian subsidiaries. The accusations relate to financial accounting records for last year in which certain investments were marked down to zero, according to a company statement.
The Bakries have been quick to respond. Last week, the family offered a combined $1.2 billion to acquire all of Bumi’s mining assets. The deal would involve a partial share swap for a 10.3 percent stake in PT Bumi Resources, a subsidiary. The Indonesian family would then offer to buy Bumi’s remaining 18.9 percent stake in the Indonesian coal mining company for cash by the end of the year.
The Bakries also want to buy Bumi’s majority control of PT Berau Coal Energy, another Indonesian mining company, in the next six months.
“A lot of investors may want to sell up and move on,” said Richard Knights, an analyst with Liberum Capital in London.
Those shareholders do not include Mr. Rothschild. The British financier has ridiculed the proposal, saying the board should not review the deal until the investigation into financial misconduct is completed.
He also has accused his Indonesian partners of giving Mr. Tan, Bumi’s chairman, preferential treatment under which he could receive more than double what has been offered to other shareholders.
Samin Tan, Bumi Chairman
“It would be a disgrace to proceed with, or even to entertain, the proposal made by the Bakries,” Mr. Rothschild said.
A spokesman for Bumi said the board would continue to look at the proposal.
The problems facing Mr. Rothschild have again raised concerns over natural-resources companies that want to list in London. Analysts say many of these companies are eager to tap the British capital’s large investor base, but have often restricted the amount of shares offered to new shareholders so that majority owners can retain control.
Eurasian Natural Resources, a London-listed mining company part owned by the Kazakh government, for example, has run into a series of governance problems in recent years. That includes the ousting of some of its British board members last year after the majority Kazakh owners opposed their reappointment.
Scrutiny also has centered on so-called reverse takeovers, in which a private firm can obtain a London listing by acquiring a publicly traded company. Mr. Rothschild’s deal to create Bumi allowed the Bakries to avoid many of the checks that would have been required if the Indonesian family had tried to take the company public on its own.
Last year, Mr. Rothschild also helped the Turkish company Genel Energy to float in London after it was acquired by Vallares, an investment company co-founded by Mr. Rothschild and BP’s former chief executive Tony Hayward, for $2.1 billion.
British regulators are moving to clamp down. This month, the Financial Services Authority, the country’s regulator, completed plans to restrict the ability of firms to complete reverse takeovers in London. Authorities also are demanding greater separation between a company’s controlling shareholder and the daily operations of the business.
“There’s been a misunderstanding in the market because many of these rules were unwritten,” said John Hammond, head of capital markets at the consultancy Deloitte in London. “Now they’ve been laid out for everyone to see.”
Source: NYT Dealbook
‘Nat Rothschild threatened me with jail,’ claims Bumi chairman
The extraordinary row erupting at Bumi plc took yet another dramatic turn after it emerged that the group’s chairman and a non-executive director had threatened to resign unless founder Nat Rothschild quit the board.
The threat, contained in an email sent by the chairman, Samin Tan, over the weekend to Sir Julian Horn-Smith, Bumi’s senior non-executive director, pre-dates Rothschild’s dramatic resignation as a director on Monday evening, when the banking scion declared he had “lost confidence” in the board to stand up for investors.
Nat Rothschild with Bakrie & Brothers chief executive Bobby Gafur Umar when the Bumi deal was agreed two years ago. Photograph: Reuters
Tan was supported by Bumi independent non-executive director, the former British diplomat Lord Renwick, who also threatened to step down from the London-listed company if Rothschild remained.
Tan’s note said: “I will resign as the chairman of Bumi plc with immediate effect unless I receive assurance that Mr Nat Rothschild will as soon as practicable stand down from the board of the company.” He went on to explain his stance by claiming that Rothschild:
• Had been persistently “disruptive”.
• Had suggested that he had “access to, and has been reading, [Tan's] e-mails”.
• Had hinted that he could have Tan sent to jail in London.
• Had claimed he could have Tan banned from entering London and could “make sure [he could be] banned from being a director in any UK company”.
The latest escalation of hostilities comes after shares in Bumi crashed by a quarter on a single day last month as the mining investor hired the law firm McFarlanes to investigate allegations of financial dishonesty at its main affiliate, one of Indonesia‘s largest coal producers. The lawyers have yet to report on the allegations.
Following news of Tan’s email, Rothschild immediately issued his own statement. His spokesman said: “The allegations are untrue and defamatory. Mr Rothschild did warn Mr Tan that, given the allegations in the McFarlanes letter, there was a risk that Mr Tan could be disbarred from serving as a director of a UK company. It is amusing that, rather than investigate the allegations, some directors want to shoot the messenger.”
Rothschild led the London flotation of Bumi two years ago, when it was known as Vallar. It was a £700m cash vehicle intended to make acquisitions in the mining industry and was renamed Bumi after taking a 29% stake in the mining business controlled by the Bakrie family in Indonesia.
The two founding parties quickly fell out and last week the Bakries proposed severing the embittered tie-up by offering $1.29bn (£800m) cash in return for Bumi plc’s mines plus cancelling the family’s own shares in the London-listed investment vehicle. The Indonesians also spiced up their proposal with a separate suggestion that Rothschild should give up a stake in Bumi plc worth upwards of £40m. Rothschild immediately opposed all aspects of the offer.
The emergence of Tan’s ultimatum gives a totally new context to Rothschild’s dramatic resignation on Monday night when his own sharply worded letter to Tan stated: “You appear determined to drive through the Bakries’ proposal. I believe that this proposal is so obviously not in the interests of minority shareholders that I find it impossible to stay on as a director. I am afraid that I have lost confidence in the ability of the plc board to stand up for investors.”
However, Rothschild’s attempts to portray himself as a hero of independent investors has caused some surprise in City circles, where many find it difficult to forget that it was the financier who created Bumi – and did the original deal with the Bakries. He reportedly had just two meetings with the controversial Indonesian family over three weeks before signing the deal and he said afterwards: “One has to be decisive when opportunities present themselves.”
After his Bumi exit, what does the future hold for Nat Rothschild?
Nat Rothschild’s reputation precedes him. The parties. The money. A string of beautiful girlfriends. Skiing and horseracing. A high-level, tight-knit network of contacts that spans the worlds of politics and business.
It’s all true — apart from the parties these days. The 41-year-old Eton-educated scion of the centuries-old banking dynasty is teetotal, a crime for anyone who could be enjoying the fruits of the Château Lafite Rothschild wine estate on tap.
Instead of carousing, the former member of Oxford’s hard-drinking Bullingdon Club swears he is in bed by 11pm most nights — with the honourable exception of his lavish 40th birthday bash last summer at a marina resort in Montenegro that he has invested in. In fact, in person, Rothschild is shy and courteous, freckled and pale. He does a good job of contradicting the image carved out years before, while living it up at university and in New York.
The party animal long ago reformed into a City slicker who criss-crosses the globe in his private jet for 750 hours every year. He has also enjoyed success: his wealth for a time was estimated to be £1 billion, higher than that of his father, Lord Jacob.
That was until a key investment turned sour and a boardroom battle broke out pitching Rothschild against his former business partners in an unfolding story that has gripped the Square Mile. Rothschild, who will one day become the 5th Baron Rothschild, has gone to great lengths to show he can live up to his famous name. Now he must defend it.
The family’s success was founded on them being trusted well-connected middlemen: brokering introductions between the moneyed classes on yachts and in country piles and then retreating into the background.
When the financier welcomed me into his Paris apartment two years ago, I didn’t know what to expect. Plenty had been written about him, but little of it with his input. The walls celebrated his wealth, covered in modern art including pieces by David Hockney and Roy Lichtenstein. On the side stood his Bloomberg terminal and coffee machine, the same makes as in his Swiss and New York homes so he can get up and begin studying the markets in identical surroundings.
Rothschild’s most famous episode made national news. It involved a stay on the yacht of Russian billionaire Oleg Deripaska, a close ally who made his money in aluminium. Moored off Corfu, Lord Mandelson, another pal, was accused of “dripping pure poison” into the ear of George Osborne about then-prime minister Gordon Brown.
The disclosure led Rothschild to write to The Times accusing Osborne, whom he has known since they attended Colet Court prep school together, of trying to use the event to extract a political donation for his party from Deripaska. Relations have since thawed.
“I guess I am fortunate to have developed a wide group of friends and connections, and sometimes they end up in the same place at the same time,” he told me, explaining that the gathering just happened. “If it had been premeditated I would be a lot wealthier than I am today.”
His reaction to what took place is no surprise: Rothschild is fiercely loyal to his trusted inner circle, but is also known for lashing out. He is a power broker not dissimilar from his father, Lord Jacob, now 76, who cut a swathe across Russia 20 years earlier hunting for new investment opportunities when rivals were fearful of what they might find.
Rothschild Junior went with him and forged links just as the ownership of assets was shaken up in the wake of the country’s debt default, leaving a new generation of businessmen seeking acceptance abroad. Years later, he was on the verge of journeying to a new frontier on his own.
To take advantage of the mining boom, Rothschild raised £700 million from backers, including £100 million of his own money. He didn’t have a business but he promised to find one. His target was Bumi Resources, an Indonesian coal mining business controlled by the powerful Bakrie family, who ceded a stake in their business for shares in Rothschild’s holding company.
To say it hasn’t gone well would be an understatement. Bumi shares have slumped over debt fears and a falling coal price. Floated at £10, the stock has slumped and investors are angry. Short of cash, the Bakries sold half of their stake to a local businessman, Samin Tan. A rift developed when Rothschild complained in a leaked letter that they should improve their governance standards.
Now the Bakries are trying to dissolve the partnership and the mud is flying. Rothschild, who was unseated as co-chairman in March, quit the board this week, saying he opposed the structure of the divorce proceedings. Tan had threatened to quit if Rothschild did not, claiming the financier had been “persistently disruptive”. Sir Julian Horn-Smith, the deputy chairman who is trying to steady the ship, labelled Rothschild an “activist shareholder” who was “completely, 100 per cent wrong” about the divorce plan.
Meanwhile, a probe into the alleged misuse of funds at the Indonesian company is continuing and the Bakries have suggested Rothschild should hand back most of his 12 per cent stake in the business, worth about £40 million, as part of the parting of ways.
However it plays out, critics say the London market shouldn’t play host to exotic firms that gain entry via the back door. Listing rules are already being tightened.
For Rothschild it is a stark about-turn. He’s well aware of the strength of his brand but there are dark mutterings in the City that he will never be able to raise funds again. Others close to him portray the Bumi episode as no more than a glitch in what they assume will be a long, profitable career.
“Nat is essentially an entrepreneur, a person who has immense talent. I’m sure he’ll play a major role in 30 years’ time, whatever he does,” said one source.
Indeed, Genel Energy, another Rothschild vehicle that brought to market a Turkish firm producing oil in Kurdistan, is faring better. Steered by Tony Hayward, the former BP boss, its shares are still worth less than when it was listed, however.
It’s important to remember that Rothschild didn’t act alone in luring Bumi to London. JP Morgan Cazenove, the investment bank, advised on the transaction, led by Ian Hannam, its former rainmaker who quit after being fined £450,000 by the Financial Services Authority for market abuse in relation to another client. He is fighting to clear his name but still managed to draw up the split strategy, with which JP Morgan is again involved.
Bumi’s board was also stuffed with luminaries such as former British diplomat Lord Renwick and Horn-Smith, the Vodafone veteran who helped to turn the mobile phone company into a global player. They should all have known better, or at least done more homework.
But the spotlight rests firmly on Rothschild, who before this point had developed a reputation as a savvy operator in his own right. When he took to business, he was clearly inspired by his father, whom he worked with on a 1989 bid for a giant tobacco company. His first proper job was as a trainee fund manager at investment bank Lazard.
Later, after meeting during a smoking break, Rothschild linked up with Timothy Barakett, a young fund manager who was trying to raise money for Atticus Capital, a new hedge fund. His father wasn’t keen.
“He didn’t think it was a very good idea,” Rothschild said. “He encouraged me to stay and do what I was doing, working as a banker. Hedge funds were an immature industry.” It was Atticus that first put Rothschild on the map. Its value peaked at $20 billion before being wound up after the banking collapse.
He might work relentlessly, but Rothschild, who has three older sisters, Hannah, Beth and Emmy, still found time to cultivate a private life. He dated Princess Florence van Preussen, the Guinness heiress and great-great-granddaughter of Germany’s last Kaiser, and was once married to Annabelle Neilson, a model with whom he eloped to Las Vegas.
The tycoon also finds time to ski, which is unsurprisingly a great passion for someone who spends much of his time living in Klosters. And he shares a love of horse racing with his mother, Lady Serena. On the day that his second cash shell floated successfully in London, one of her horses, Nathaniel, won the King Edward VII Stakes at Royal Ascot.
It is unlikely that Bumi shares will romp ahead in similar fashion. The challenge Rothschild faces now is to extricate himself from this messy venture. Maybe then he could settle for emulating his famous line, not trying to eclipse it.
Source: Evening Standard