The Australian Takeovers Panel suspended Energy Resources of Australia Ltd.'s A$476 million renounceable entitlement offer after flagging a possible takeover by Rio Tinto at the expense of minority shareholders.
Energy Resources of Australia launched the offering of 6.13 new shares for every existing share to fund rehabilitation costs for the Ranger uranium project in Australia's Northern Territory.
Rio Tinto subsidiary North Ltd. agreed to fully underwrite the offering. The mining giant has a 68.39% stake in Energy Resources of Australia.
Zentree Investments Ltd., a 15.94% shareholder in Energy Resources of Australia, filed a petition seeking to block the transaction, citing unfair terms for minority shareholders.
The panel ruled Dec. 11 that Rio Tinto cannot make a compulsory acquisition of shares in Energy Resources of Australia without shareholder approval.
As the offering is highly dilutive, the panel said minority shareholders will be unlikely to participate as it requires shareholders to invest additional capital to avoid dilution.
The panel also questioned the independence of a committee that approved Rio Tinto's funding support and flagged inadequate disclosure on the offering's possible outcome on Energy Resources of Australia's ownership.
In addition, the regulator said the underwriting agreement impacted aspects of management of Energy Resources of Australia and dealings with its Jabiluka uranium project over the medium to long term.
The offer will be postponed for at least 20 days to allow Energy Resources of Australia to make further disclosure on the offering.
The panel also ordered the underwriter to not terminate its underwriting agreement while voiding a clause affecting Jabiluka.