Published:
Sunday, February 5, 2017
Now that the Cemex takeover of Trinidad Cement Ltd (TCL) is done and dusted, the question on the minds of the investing public is: Who’s next on the hit list of the unrelenting corporate raiders? Well, if you read my BG article last December: “Is Guardian Holdings in play?” it would certainly be a no-brainier. Avid readers may recall on that occasion, I posited that:
On November 30, 2015, National Commercial Bank Jamaica (NCBJ) entered into an Agreement with the Lok Jack Family, the Ahamad Family, and the International Finance Corporation to purchase a 29.99 per cent interest in Guardian Holdings Limited (GHL).
In May 2016, the acquisition was completed with the GHL shares being acquired by NCB Financial Group Limited (NCBFG), a nominee and affiliate of NCBJ, at a total purchase price of J$28 billion or circa US$220 million.
In April 2016, NCBFG was incorporated with a view to that company eventually becoming the financial holding company for NCBJ and its subsidiaries, as well as future acquisitions.
On August 12, GHL advised of the appointment of NCBJ directors Michael Lee-Chin, Patrick Hylton, and Dennis Cohen to GHL’s board with effect from August 4, 2016, to replace GHL directors Marianne Loner, Douglas Camacho, and Selby Wilson.
In October 2016, NCBJ advised that the Bank of Jamaica had indicated it has no objection to NCBFGL becoming the non-operating financial holding company for NCBJ and its subsidiaries.
In December 2016, NCBJ advised that it successfully completed a securitisation transaction which generated financing of over US$150 million, via the issuance of notes backed by future flows derived from international merchant voucher receivables.
I pointed out that although the Lok Jack and Ahamad families sold a significant portion of their shares in GHL, they continue to hold collectively 50.6 million shares or 21.8 per cent (valued at circa US$104.1 million based on last Friday’s share price of $14), or put another way, just enough shares to guarantee NCBJ at least a 51 per cent controlling interest, a familiar strategy for anyone who followed the TCL takeover.
I also drew attention to the fact that the remaining 21.8 per cent stake is not held directly by the Lok Jack and Ahamad families, but by local private companies wholly owned by them.
What this means is that these shares do not have to be sold on the TTSE but can be sold indirectly to NCBJ at any time via the sale of these companies.
GHL and NCBJ would then just simply have to inform the TTSE within five days of the transaction in accordance with Rule 603.
Next step
And I highlighted the fact that PwC (Jamaica), in their audit opinion for NCBJ, indicated that management had disclosed the existence of “an option” to acquire an additional shareholding in GHL which would give control.
Fast forwarding to 2017, on January 27, NCBJ shareholders approved the reorganisation of the group for NCBFG to become the holding company for NCBJ and Summer Success Limited (T&T), two of its immediate fully-controlled subsidiaries.
Summer Success (T&T) is the holding company of the 29.99 per cent stake in GHL.
While NCBJ is the holding company for all the other subsidiary companies such as NCB Investments, NCB Capital Markets etc.
The next step in the process is to seek the sanction of the Supreme Court of Jamaica for this new scheme of arrangement.
This is to be done via a hearing in court on February 22, 2017.
If approved, NCBFG will then legally become the holding company for NCBJ, Summer Success (T&T) and their subsidiary companies.
The court approval will result in the current NCBJ shareholders of NCBJ becoming owners of NCBFG.
All existing NCBJ shares will be cancelled and shareholders will receive new shares in NCBFG.
According to the group managing director the goal of the restructuring is to facilitate the future expansion of NCBFG throughout the Caribbean region and, if sanctioned by the court, will become effective by April 2017.
As previously indicated, the issue is therefore not if a takeover offer will be made to GHL shareholders but rather when and at what price now that the last piece of the puzzle is almost in place.
Ceteris paribus, my own back-of-the-envelope calculation puts the offer price at between $18 and $21 and I guesstimate the timing of the offer to be by the end of the second quarter of 2017.
However, this could change given the likelihood NCBFG might wish to take advantage of the handsome final GHL dividend that is usually declared in March and paid in April 2017.
Truth be told, in the final analysis, there are no sacred cows, history has shown no one is immune from a well orchestrated and executed takeover especially in today’s financial arena, where greed is still good, the preferred weapon of choice remains growth by acquisition, and the ‘smart money’ is now eyeing GHL.
Peter Permell
Minority Shareholder Rights Advocate
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