BILLIONAIRE TAKES A RISK, AND WINS

AUSTRALIA’S biggest individual taxpayer – that’s, biggest in our entire history – Gina Rinehart has deployed an unusual threetier pricing structure to wrap up control and full ownership of an unusual coal company Riversdale Resources.

Riversdale is unusual because it is located in Australia, it is a public company but is not listed on the share market, and its only asset is a relatively small but rich undeveloped met coal resource (for steelmaking not for electricity) on the other side of the Pacific in Alberta, Canada.

Rinehart who already had 20 per cent of Riversdale from a placement of shares directly from the company offered $2.20 a share without any conditions and specifically without the usual 50.1 per cent acceptance condition that would deliver control.

However, if she did get to that 50.1 per cent mark, the price paid to every accepting holder would be increased to $2.50 a share.

She fairly quickly moved to 37 per cent after three of the company’s founding shareholders – a former chairman, a former CEO and a former CFO accepted for their holdings.

But current insiders holding 48 per cent had continued to reject her offer – making it unlikely that she would get to 50.1 per cent and control; and that further, those who had accepted would be stuck with only $2.20.

On Monday she added a new tier: she would pay $2.70 if she got to 85 per cent. This triggered a bizarre but successful response.

The company’s independent directors continued to formally unanimously recommend shareholders reject the Rinehart offer – just as those controlling holders were in the process of accepting it.

As a result, yesterday morning she moved straight past 85 per cent. All holders will now get the $2.70 and Rinehart will certainly get the 90 per cent needed to compulsorily acquire all the rest of the shares.

The purchase is relatively small change for Rinehart. She will end up paying $744 million in total (including the original placement). But then will come the development costs.

It’s another example of her putting her money on the line. She committed billions of dollars to developing the Roy Hill iron ore mine in the Pilbara on her own and Hope Downs, also there, in partnership with Rio Tinto.

With Canberra then getting a free ride on the taxes she ends up paying – while very happy to spend the money, but with precious little thanks to her and indeed other risktakers.

In this case, because it’s in Canada, Canberra will – very appropriately – only get the tax left-overs.