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THE HOYOS FILE: Latin Capital Fund purchase triggers Banks’ takeover bid

Pat Hoyos, [email protected]

THE HOYOS FILE: Latin Capital Fund purchase triggers Banks’ takeover bid

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IF YOU HAVE SHARES in Banks Holdings Limited (BHL) you should be getting a letter fairly soon, offering you $4 for each one of them.

Considering that if you had put them on the market just a week ago you wouldn’t have got more than $2.50 per share, this does not strike me as a bad offer.

BHL shares suddenly went up over 60 per cent in value last Tuesday when the Barbados Stock Exchange (BSE) announced that a “block trade transaction” in the shares of BHL had occurred on the board of the Exchange at 10:15 a.m. on September 22, 2015. I know, they made it sound like an earthquake had hit, what with us the exact time the event “had occurred”.

But the “transaction” – between SLU Beverages Limited (the buyer) and Neal & Massy Holdings Limited (the seller) for 13.2 million shares and totalling $52.6 million – was a kind of financial earthquake. Any time that much money flows through the system you have to take notice, and the Takeover Code it has automatically triggered – since it puts the total stake now owned by the buyer at more than 25 per cent – could be seen as a financial tsunami, but a good one.

And like most earthquakes these days, it was expected. We just didn’t know when it would actually occur to shake up our financial system. In the never-perturbed lingo of the exchange, “The BSE approved this transaction in respect of item four of the BSE Block Trade Rules which states, ‘the sale and purchase of a listed security pursuant to a take-over transaction, conducted or to be conducted in accordance with the applicable laws’.”

Since SLU Beverages now controls 40 per cent of BHL, under the Takeover Code it now has to offer the same deal to all other shareholders, three of which own around 22 per cent of BHL between them. If these sell to SLU, its stake will increase to about 62 per cent. These are BWPL Holding Ltd. of Trinidad & Tobago (Blue Waters Products Limited) which owns about 7.6 million shares or around 12 per cent of the comapny; and Banks DIH Limited of Guyana and Sagicor Financial Group, which own almost identical amounts, about 4.3 million shares or 6.7 per cent each. Added together, these three companies own around 16.2 million shares, so at $4 it would cost about $65 million to buy them out, assuming they want to sell.

Once it gets 90 per cent the purchase can forcibly acquire the remaining ten per cent if it so desires. Presumably the goal will be to get to at least 51 per cent, but remember, under the Takeover Code “they gotta buy if you wanna sell” (Note: that is not the official text of the BSE’s rule four but my interpretation of part of it).

SLU Beverages is a subsidiary of Latin Capital Fund 1, which coverted a loan it made to BHL in 2010 for a 20 per cent stake in the company. It was clear from the start that Latin Capital Fund 1 was going to make a play for controlling interest, if not a full takeover, in the future. In a letter to shareholders dated June 30, 2010, BHL announced that it was issuing new shares to Latin Capital Fund 1, LP” via its subsidiary SLU Beverages Limited. The investment fund had lent US$28 million to BHL with an option to convert to shares, and exercised that right, turning US$26.5 million of the total debt into 13.25 million shares in BHL.

In a follow-up letter, dated December 13, 2010, which, like the first, was signed by then BHL chairman Sir Allan Fields and still current chief executive officer Richard Cozier, the company stated that “an integral part of financing models such as this is the need to protect all shareholders from future dilutions of their holdings and such a clause is included in our agreement”. As a result, the company said, an extraordinary general meeting was being “convened specifically” because “we have been advised that shareholder consent for restrictions on future utilisation of shares as a financing option should be obtained”.

The meeting was held at the end of January 2011 at the Lloyd Erskine Sandiford Centre, and turned out to be a contentious one, with protests about BHL’s actions coming from many shareholders. A poll vote was conducted, with the vast majority of the shares voted approving the resolution, which read as follows: “Until such time as Latin Capital Fund or any affiliate thereof shall cease to hold shares and/or notes convertible into shares in Banks Holdings Limited there shall be no change made to the number of issued shares in Banks Holdings Limited except with the written consent of Latin Capital Fund”.

Therefore, the only entity which could authorise new capital to expand BHL’s operations was Latin Capital Fund 1. However, in ensuing years BHL suffered due to the recession in Barbados and around the region. Net income increased from $7.3 million in 2010 to $8.3 million the following year, but fell to $6.4 million and $5.5 million in 2012 and 2013, according to the company’s 2014 annual report (page 19).

In 2014, profits recovered to $12.1 million and for the first nine months of the just-ended financial year (May 30), the company earned net income of $17.6 million. It should be noted that the group’s associated companies provided much of the profits as BHL’s own operations incurred a loss of $1.8 million in 2013 and struggled through much of the last five years.

So maybe Latin Capital Fund 1 wanted to be assured that the company was back on the right track before moving forward with its takeover plans. To me it is significant that it targetted Massy first, making them an offer they wuold not want to refuse, as they would be the only company that could seriously contemplate the potential huge cost of the buyout, which could cost nort of $200 million if every single shareholder joined in the queue behind Massy to offload their shares at that excellent price.

We shall see who sells and who doesn’t in the coming months.