With just a week to go before Banks Holding Limited (BHL) shareholders decide whether to sell or keep their stake in the island’s largest beverage manufacturer, a leading economist suggests the company’s directors should have provided more guidance to help shareholders make an informed decision.
While acknowledging that the ball was solely in the court of shareholders, economist and Dean of the Faculty of Social Science at the University of the West Indies, Cave Hill Campus, Dr Justin Robinson told Barbados TODAY that while the directors did provide some assistance, there was room for more helpful information.
“The shareholders do have the benefit of the valuation that was done by KPMG so the directors have exercised part of their duty of care to the shareholders by having the valuation done and providing that information. But I think it would have been helpful to perhaps provide them with some further guidance, but it is essentially an individual decision.”
Back in September, SLU Beverages Limited, which is owned by Companhia de Bedidas Das Americas (AMBEV), offered to purchase all BHL shares after it bought those of the second largest shareholder, Massy Holdings, in a block trade on the Barbados Stock Exchange.
SLU has offered to pay $4.00 per share for its 13.1 million shares in the BHL that owns Bank Breweries, Pine Hill Dairy, Barbados Bottling Co. Ltd and Banks Distribution Limited.
With the takeover bid looming, the BHL Board issued a directive to shareholders not to make any decision on giving up their shares until a valuation was conducted.
However, in a new twist at the weekend, the BHL directors instructed shareholders that they would not “make a recommendation to accept or to reject the offer”.
They explained that “shareholders’ circumstances are not all the same and each shareholder should consider the information provided in this document as well as the professional advice of their own advisors”.
According to the directors, a valuation by the company’s financial advisor, KPMG, had concluded that the offer price was “fair” from a financial perspective, though it pointed out that market value of that share was $5.20 – $1.20 above the SLU offer.
Robinson contends that shareholders must now ask themselves three fundamental questions.
“Why do I own these shares? Am I interested in liquidating them for cash now? If I get this cash what would I do with the cash?
“I think people need to make those kinds of decisions whether or not they are actually interested in selling their shares or if they want to hold onto them as an investment and if they want to sell are they prepared to take the $4.00 per share or wait for a better offer which appear to be closer to what is the professional value of $5.20, and you have the book value of $4.81.”
Staying clear of advising shareholders, Robinson noted that a shareholder’s cash flow position was likely to be a major determining factor.
“If you have an urgent need for cash or you want to cash out these shares then the $4.00 offer is a better offer than anything else around. Whether you hold on or not, you will have to make a judgment call on whether you believe a better offer is going to come as a result of this takeover bid.
In contrast, he suggested that an investor reluctant to part with shares had the option of converting their BHL shares to AMBEV shares.
“If I were a long term investor that would be the option that would be most appealing to me. If I really wasn’t interested in converting this investment into cash I would be quite interested in the possibility of converting my BHL shares into AMBEV shares if AMBEV was the only offer on the table, because then I would get some diversification, I would retain my interest in BHL but at the same time have my interest in a much bigger entity.”
The SLU offer expires on October 26 at 3 p.m.
Robinson reiterated his concerns about the discrepancy between the market value of BHL on the Barbados Stock Exchange [$2.49], which was lower than then the book value of the company’s shares [$4.81].
He warned the issue needed to be examined since it created the potential for takeovers to occur at relatively low prices.
“If someone wants to buy a company where does the conversation about price start? I think the logical place to start is the market value that is where a potential buyer would start. In my opinion if that price is so deflated then I think the bidding starts very low and that is where that disadvantages local investors.
“This has been around for while, we saw it with Light and Power [BL&P], if you go further back when Banks took over Pine Hill Diary, there was quite a protracted bidding war and the prices went up. Then we had Barbados Shipping and Trading, Sagicor, Life of Barbados, so we’ve seen this issue repeatedly.”