Ottawa businessman shifts tactic from takeover to financing in Nautilus bid
Michael Bailey tells Mineweb that he will forego his takeover attempt if Nautilus meets his financing related demands.
Posted: Wednesday , 16 Jan 2013
VANCOUVER, BC (Mineweb) -
Michael Bailey, the controversial Ottawa-based trader at the center of multi-pronged bid for Nautilus Minerals is again shifting strategies.
Bailey started out with a C$0.97 a share takeover offer early last week, which then grew to C$1.10, and then expanded to include a demand for a complete new set of directors for the Nautilus board by week's end.
Bailey was to release proposed directors this week, but pulled back on the takeover attempt in lieu of a list of demands for Nautilus to meet if it wanted to avoid Bailey's attempted takeover. The centerpiece of this list was that Nautilus, which at last count had about $90 million in cash, accept a $80 million equity line financing Bailey has arranged in a non-binding term sheet through Dutchess Capital Partners, a Boston-based firm.
Bailey also demanded on Tuesday that Nautilus accept Robert Goodden, a former Nautilus advisor and Chairman of UK-based Subsea Minerals, as a director and the resignation of Nautilus President and CEO Michael Johnston and former Nautilus President and CEO Stephen Rogers, now a Nautilus director.
The change in tactic came after Bailey said he received email correspondence from Johnston inquiring about Bailey’s funding source for the proposed takeover. Bailey, who has declined to identify his possible financiers for the Nautilus takeover, said in a Tuesday interview with Mineweb that he forwarded his Dutchess financing proposal on to Johnston "because he was asking me about details of the financing for the takeover and, instead of worrying about that, let’s just get to work."
Bailey contended the path forward for Nautilus, which is embroiled in a dispute with the Papua New Guinea (PNG) government over funding responsibilities for the Solwara I underwater mining project, is now to cover PNG’s funding requirements for the project -hence his financing offer. Nautilus pegged the unpaid bill at about $52 million back in November and, because of it, put the project development on hold.
As with his takeover proposal, Bailey’s demands regarding the board makeup seem to be evolving as his plans unfold day to day. Bailey had previously floated Julian Malnic, the founder of Nautilus who is no longer affiliated with the company, as a director, noting Malnic’s displeasure with Nautilus’ progress in PNG in a press release last week.
Indeed Malnic reiterated criticism of Nautilus in an interview with Mineweb on Friday, but said Bailey’s press release calling for him to be nominated to the Nautilus board of directors was "a little spurious." He said he never agreed to be nominated, and wondered if one could be floated as a nominee if said person hadn’t agreed to the idea in advance.
In response to questions about Malnic’s statements, Bailey said on Tuesday that he was no longer calling for Malnic to join the Nautilus board because Malnic had told him in an email he had decided to take on a fulltime commitment at another company. He argued, however, that it wasn’t irregular to put forward a nominee’s name that hadn’t yet signalled support for their nomination to a board.
"I don’t know if you can agree to be nominated,” Bailey said of his proposal last week to put forward Malnic’s nomination. He added that Malnic had pondered the idea in a conversation, yet "didn’t agree to join the board. But nobody has agreed to join the board, because we haven’t nominated anybody to the board as of yet."
On Friday Malnic said, while he didn't dismiss Bailey’s takeover attempt and push for change at Nautilus, he hadn’t spoken with Bailey and that he didn’t have detailed knowledge about the funding Bailey said he had arranged for the Nautilus takeover.
“That's not the basis to make any decisions,” Malnic said, referring to the possibility of joining a post-takeover board at Nautilus, were that to occur.
Several other of Bailey’s online missives outlining his plans, ultimatums and vision for Nautilus have been followed by similar backpedaling or clarifications.
At the outset, as reported in these pages last week, Bailey had said Fasken Martineau would represent him in his takeover attempt. Fasken Martineau, however, denied any dealings with Bailey, though he maintained he did in fact have a relationship with Fasken, just not on the proposed Nautilus transaction.
Bailey reported that a law firm called Bacchus Law would represent him instead.
Bailey had also said Robert Goodden would become interim Chairman of Nautilus’ board following his proposed takeover. However Goodden subsequently stated he did not authorize that press release outlining the proposal, as first reported by the Australian Financial Review (AFR) and later confirmed by Mineweb.
Goodden was mum, however, on whether he had agreed to take the Chairman position if it were possible.
In response to a direct question on the matter Goodden declined comment and relayed Mineweb’s request to Bailey. Goodden stated, as he had already to AFR, that he was supportive of a successful, well-funded bid for Nautilus.
Then this week there was some confusion over how Bailey approached Dutchess to propose the $80 million equity financing facility that he now demands Nautilus accept in order to avoid a takeover attempt.
Dutchess confirmed to Mineweb on Tuesday it had issued Bailey a non-binding term sheet for the $80 million financing, pricing details of which are still under wraps. In answer to an inquiry seeking verification of a press release outlining the $80 million financing and other demands by Bailey, Dutchess managing partner Douglas Leighton responded with a statement.
“Our involvement is as follows: We were contacted by Mr. Bailey and he represented to us that he was an agent for [Nautilus]. He stated they were looking for an Equity Line Facility. We provided a non-binding term sheet that has yet to be signed by either party.
Leighton then stated in his email that “The press release you sent was news to me and we did not authorize that release.”
In an interview Tuesday, responding to questions about how he approached Dutchess, Bailey - who stated he has a finder’s fee arrangement with the firm - said he and Dutchess had not discussed his affiliation with Nautilus.
“No. I approached them as a shareholder,” Bailey said. “We didn’t define how I was approaching them. I just called up Doug and I said we need a financing for Nautilus and at this price.” (No pricing details given.) “I never even implied that I was an agent for Nautilus or anything to that effect.”
Later in the day, after an email seeking clarification about whether Bailey had stated or implied he was acting for Nautilus as Dutchess had suggested, Leighton said, “I don't remember. He said that he had a company that needed an equity line from us. I sent him a term sheet. It's that simple.”
Clarifying this statement further, Leighton said by email, “By the very nature [of] him stating that he ‘had’ a company needing financing, I call that an agent.”
For Nautilus's part, spokesperson John Elias said in an emailed statement the junior explorer did not yet have a response to Bailey’s latest press release about the equity line financing and the ultimatum therein. So far, Nautilus’ most direct address to the Bailey proposals, in public that is, was a statement it made on Sunday. In it Nautilus said it still sought additional information about the bid and that two of its main shareholders MB Holdings and Metalloinvest had not, according to its inquiries, been approached with an offer by Bailey. Nautilus did not mention Anglo American, another top three shareholder, which has declined comment to Mineweb on the matter.
In the Sunday statement Nautilus also called into question Bailey’s intent in making the takeover proposal, which Bailey has maintained is genuine. Nautilus pointed to Bailey's 2010 attempt to takeover Vaaldiam. Back then Vaaldiam management questioned Bailey's financial backing. Bailey, however, has defended the Vaaldiam takeover attempt, saying that the issue that led to the failure of the takeover was that he faced strong opposition from management on his proposal.