THE HOYOS FILE: ANSA McAl’s bittersweet ‘victory’ too late
Having lost the war for Banks Holdings Limited (BHL) of Barbados to AmBev of Brazil, ANSA McAl of Trinidad & Tobago learned last week that it could win one of the major battles. Except that it is now much too late.
Last week, the Barbados Court of Appeal restored the injunction granted by Chief Justice Sir Marston Gibson on November 6 2015, but lifted by him a week later, on November 13. That injunction restrains BHL from performing or otherwise giving effect to certain preferential shareholders’ rights in favour of SLU Beverages Ltd. now indirectly owned by the Brazilian-based company AmBev.
According to a Press release issued by ANSA McAl, the Court of Appeal determined that there was indeed, as ANSA had claimed all along, a serious issue to be tried in the courts because “there was undisputed evidence that SLU’s conversion shares conferred special rights and privileges on SLU, that were not enjoyed by other BHL shareholders”.
In fact, the other shareholders only found out about them during the takeover bid, in late October.
The Court of Appeal said those special rights and privileges created by a “poison” debt security agreement were given effect solely at the direction of the BHL board without the consent of BHL shareholders.
ANSA quoted the court as saying that “rather incredulously, in this brave new world of corporate governance,” the BHL board was of the view that it could not disclose the agreement to BHL shareholders because of a confidentiality clause in it.
Those poisoned privileges remained hidden in the agreement for six years.
When Ambev decided to go after BHL, the first thing it did was to acquire SLU. Within a few weeks it had bought Massy Holdings’ stake (the stake in BHL acquired by Massy when it took over Barbados Shipping & Trading Co. Ltd.).
With both SLU and Massy having just over 20 per cent stakes, a takeover bid was triggered automatically by AmBev’s Massy share purchase.
Then AmBev went out looking for the rest of the shares, although it now only need less than 11 per cent more for control.
“The taking of Banks 1-2-3”:
1: buy SLU stake with poison pill included.
2: buy Massy stake.
3: launch public takeover bid.
ANSA McAl, which always dreamed of owning Banks Holdings, was caught flat-footed. It had to move quickly.
The Massy shares were bought on September 22. Less than a month later, on October 15, ANSA purchased the roughly 13 per cent stake (8.4 million shares) in the company owned by Blue Waters Holdings (BWPL).
This was holding company set up by Dominic Hadeed to hold shares he initially got from trading his stake in Citrus Growers of Belize for BHL shares, and then adding to them substantially afterwards.
I have no idea what ANSA McAl’s motivations were in getting into the takeover war. I choose to believe that it really wanted, as it claimed, to keep Banks’ ownership in the region, and to marry the two rivals, Banks Beer and its own Carib beer, into one big happy family to take on the likes of Heineken and Piton.
But ANSA didn’t know about the ace up Ambev’s sleeve.
The “share buyback” part of the deal with SLU was disclosed for the first time by the BHL board in its October 28 circular to shareholders.
And for the second time, and perhaps fatally in terms of its bid for BHL, ANSA was knocked for six.
The BHL board advised shareholders that the loan agreement with SLU Beverages also provided that “if any person or group becomes the direct or indirect ultimate owner of BHL shares representing more than 25 per cent of the total voting power of the BHL shares, then SLU could require BHL to purchase any promissory notes or shares converted from those notes at the price of 2.5 times the outstanding principal amount thereof, plus accrued and unpaid interest”.
Therefore, the directors, said: “Another bidder must therefore take into account that in the circumstances of succeeding in its takeover bid, SLU can invoke the above clause which may have a significant financial impact on BHL.”
At the risk of being boring, here is the arithmetic:
The agreement required that if a company other than SLU purchased BHL, the loan it had converted into shares at $4 per share would have to be repurchased by BHL at $10 per share.
SLU had been issued 13 250 000 shares in BHL for $53 million, so it had the option to make BHL repurchase those shares for $132.5 million, plus another US$4.5 million for the outstanding loan it had to the company of US$1.5m.
In other words, for about $140 million.
In its public response, ANSA McAl asked: “Did the BHL board really undertake a $140 million liability in exchange for borrowing $56 million?” (Yes, it had.)
ANSA was furious, charging that “this unapproved poison pill therefore attempted to make any potential acquisition of BHL unattractive to investors, lower demand for the shares and ultimately deny shareholders of the potential to realise the full value of their shares”.
So it sought that injunction. When it was lifted, it was by then all over. Within a few weeks, ANSA sold its BWPL shares to AmBev.
Last week, ANSA McAl, despite saying it was pleased with the ruling, would only add that “we are currently considering all of our options”.
Why did BHL do it?
I can only imagine that it was having trouble finding the money to build its new plant at Newton, Christ Church and desperate needs sometimes require similar measures. The board said it did what it was guided to do by the local authorities as per shareholder approval.
But in its effort to move forward with its plans, it gave another, perhaps unforeseen, investor the perfect wedge to get in the door, which it used to completely take over the company, for better or worse.