THE HOYOS FILE: The ‘poison pill’ that may discourage bidders
The same board of directors (but not necessarily the same individuals, of course) which gave Latin Capital Fund 1 the power of a virtual poison pill in its takeover bid for Banks Holdings Limited (BHL) has told the other shareholders whom it placed in a secondary position four years ago to wait on its advice as to whether they should take up the offer.
Life is full of ironies, but the ones filled with hubris are all the sweeter to contemplate.
I only say this because I would like to know why any shareholder should be interested in the advice of the BHL board.
I’ve already outlined, in my article of September 28, how Latin Capital Fund got into that sweet spot as a BHL shareholder, via a resolution that gives them the poison pill, which any other would-be takeover bidder would have to contemplate.
As Sir Frank Alleyne said afterwards to this reporter: “I told them they are setting a double standard.
“You go and make a decision to dilute the shareholding and then you call upon the minority shareholders to agree with you that the Latin Capital group can now demand of us that no decision to further dilute the shareholding and be made even if it is in the best interest of the company.”
So let me recap, my friends: in 2011, BHL needed money to finish its new plant at Newton.
It took a loan from Latin Capital Fund 1 of US$28 million with the proviso that it could be turned into shares at any time.
Less than a week later the investor exercised that option. Thus new capital came in to BHL – US$26.5 million to be exact, for which 13.25 million shares were issued.
Hence, the dilution of the other shareholders’ percentage holdings in the BHL group.
And to make sure it never happened again unless they agreed, Latin Capital got BHL to pass the resolution noted above six months later.
This meant, said Sir Frank, that Latin Capital Fund 1, while still common shareholders, now had special rights because while they were involved BHL could not issue any further shares without their permission.
He asked: “How can you have different rights for the same class of shareholders?”
It seems highly unlikely that anyone else is going to bid for the BHL shares with Latin Capital having veto power on raising new capital.
Because even if another bidder, either from within the current pool of shareholders or outside, were to enter a bidding war and finally got all the remaining shares – 60 per cent in total – they would not be able to raise new capital in the future without the permission of Latin Capital Fund 1 (read Anheuser-Busch Interbrew, the world’s largest brewer).
Would you want to control a company when you still have to ask the minority shareholder for permission to bring in new money from outside?
Private sector to blame
Noteworthy: In response to my article last week titled Unranking Barbados, a reader, Alicia Nicholls sent me an email which was a perfect example of how “a spoonful of sugar makes the medicine go down”.
Nicholls let me know that it was the private sector which would be the Social Partnership member to blame for Barbados not sending enough information to the World Economic Forum (WEF) to make its 2015-16 Global Competitiveness Index (GCI).
She wrote: “I am an avid reader of your articles and I just read your article in the BARBADOS BUSINESS AUTHORITY entitled Unranking Barbados in regards to Barbados’ absence from the World Economic Forum’s Global Competitiveness Index 2015-2016. I worked on the survey team for two years (2013 and 2014).
“The data which is used for the WEF’s Global Competitive Index (and many other indices published by WEF) is collected via surveying a sample of businesses in Barbados. It does not involve the Government in any way. It is a purely private sector-focused exercise.”
And here is what seems to be the problem: “It is notoriously difficult to get businesses to participate in the survey. A few companies routinely participate, but a good many (including some prominent players) either outright refuse to participate or do not complete enough of the survey form for it to be usable.”
After I replied, thanking her for setting me straight on the matter, she gave me permission to publish her email, saying “I think it is a most unfortunate event that Barbados is not in the GCI this year and maybe by sharing this, it may influence local businesses to participate in next year’s survey.”
She noted that “in both years I worked on the survey team we were lucky enough to reach our sample number, in one case barely.
I didn’t work on it this year but I suspect maybe this year they did not reach the target number, hence Barbados’ lack of representation.”
By the way, according to earlier WEF Global Competitive Index reports, the entity in Barbados which is contracted to collect the data is the Sir Arthur Lewis Institute of Social and Economic Studies.
Anyway, since I offered five reasons last week why the Government (as I thought at the time) may have missed the GCI deadline, I came up with a similar number as to why the private sector had missed it. Here they are:
1. The weekend they were going to complete the survey was also the weekend of the Local Competitive Tee-Off.
2. They were going to squeeze it in the night before the deadline but then they realised that Empire was on.
3. The completed survey forms had to go for review by the Social Partnership, which set the date for three years from now.
4. The private sector was too busy discussing how to get more funding for how to get more competitive.
5. They discovered they had laid off people who had completed the survey for them in previous years.