You are here

ISR reveals corporate advisor's link to vendor in major acquisition

Monday, August 15, 2016 - 09:10

ISR Capital has revealed that it is taking advice on a major acquisition from a corporate advisor whose partner is also a director of the vendor in the deal, according to the company's replies to queries from the Singapore Exchange (SGX).

ISR, which first announced a memorandum of understanding to acquire a stake in a Madagascan rare earths mining company from REO Magnetic on May 20, eventually agreed to take a 60 per cent stake in Tantalum Holding (Mauritius) through two sale and purchase agreements in June and July. The acquisition has yet to be completed, and ISR intends to pay for the Tantalum stake by issuing its own shares to REO.

On July 1, when ISR announced that it was acquiring a 40.1 per cent stake in Tantalum from REO to bring its total Tantalum interest to 60 per cent, ISR said it had appointed Empire Capital Partners as corporate advisors.

"The company is also pleased to inform shareholders that it has appointed Empire Capital Partners Pty Ltd as corporate advisors for the company's acquisition of the project," ISR said on July 1. "Empire Capital Partners will also lead and manage a fund-raising exercise for up to S$30 million."

At the time, ISR described Empire Capital Partners as a "boutique corporate advisory firm in Perth, Australia".

SGX on Aug 10 and 11 asked ISR for more details about Empire Capital. Specifically, SGX asked ISR to disclose whether any Empire Capital officeholders had links to REO.

Indeed, ISR's reply late on Aug 14 revealed that Empire Capital partner Timothy Morrison was also a director of REO. ISR said "a letter of engagement with Empire" on May 21 "was accepted by the company" on May 26.

In explaining why it had not disclosed Empire's relationship with REO, ISR said that it had conducted a business records search on REO on May 20, and Mr Morrison was only appointed as a director of REO on June 6.

Even given the facts now available, ISR's board said that it still does not view Mr Morrison's appointment at REO to be in conflict with the company's interest.

ISR said Empire Capital was "appointed principally to take a lead in corporate advisory, which include coordinating a site visit to Madagascar and facilitating the conduct of a preliminary due diligence".

In terms of what corporate advisory entailed, ISR said that Empire Capital was hired to perform four functions, described in this order: (1) assist in assessing market information and business strategies relevant to the operations of the company; (2) assist in reviewing, evaluating and structuring any proposed transaction; (3) assist in developing a general negotiating strategy and in actual negotiations with potential investors and consult with and assist counsel and independent accountants in structuring and executing any agreement; and (4) assist in preparing summary information for potential investors in ISR.

ISR said that the scope of appointment as described shows that the "primary role" of Empire Capital was "to source for and raise funding for the company from potential investors, and not to negotiate the terms of the sale and purchase agreements".

"The board views that Mr Timothy Morrison's appointment may aid the process of the acquisition post signing the sale and purchase agreements," ISR added.

Reiterating previous announcements, ISR also said that its recently appointed executive director, David Rigoll, used to be a director and shareholder of Tantalus Rare Earths AG, which holds the remaining 40 per cent of Tantalum Holding not owned by REO. He also used to be a director of Tantalum Holding. But Mr Rigoll sold his shares and left Tantalus Rare Earths and left Tantalum Holding before the memorandum of understanding was signed.