Aug 2011 Financial News

'Saviour of Lascelles'

Aug 10, 2011

The takeover bid launched by Black Sand Acquisition Inc for spirits conglomerate Lascelles deMercado was influenced by the possibility that its holdings in Carreras Limited were about to be sold off to bail out ailing parent, CL Financial of Trinidad.

Lascelles is the second largest shareholder in Carreras with 74.26 million ordinary shares or 15 per cent - after parent British American Tobacco - and a similar holding in the company had been posted on the Jamaica Stock Exchange (JSE) for sale, according to the take-over circular released by Black Sand last Friday.

The other directors of Black Sand were identified as:

Stephen Facey, president and chief executive officer of Pan-Jamaican Investment Trust and chairman of Jamaica Property Company Limited; David McConnell; Richard Hurowitz, chief executive officer and chief investment officer of Octavian Advisors; Igor Kuzniar, managing director of Octavian; and Yaov Magen, director of Octavian.

Black Sand, noting that Lascelles "had traditionally adopted a conservative business model" and has remained profitable, pointed to several events over a 30-day period between June and late July, which it said fundamentally informed the US$3.86 per share takeover bid - including the Lascelles board declaration on July 8 of an interim dividend of J$5.50 per share, approximating US$6 million in total, and a special dividend of J$25.70 per share, or US$29 million in payout.

"The massive dividend payment and the possible sale of the Carreras shares raise concerns as to the sustainable performance of the company," said the notice to shareholders, signed by Black Sand chairman William McConnell.

McConnell, who was managing director of Lascelles up to June 30, delivered annual profits of J$2.6 billion to J$3 billion.

Black Sand is seeking to acquire at least 90 per cent of the ordinary shares in Lascelles and all the preference shares, a bid that requires Trinidad's acquiescence to succeed.

CL Financial and its companies own 87 per cent of the company, acquired at about US$650m to US$700m from McConnell and other shareholders three years ago in a friendly takeover.

The CL Financial Group has been in the custody of the Trinidad & Tobago government and its central bank since January 2009.

Black Sand also pointed to McConnell's retirement from Lascelles after 21 years as managing director and 38 years with the group as another of the significant developments, as well as the resignation of chief financial officer Anthony Bell, and all the long-standing independent directors of the board.

Of significance also was that on July 22, the High Court in Trinidad ordered Colonial Life Insurance Company Limited (CLICO), a member of the CL Financial Group, to repay nearly US$10 million to six policyholders who brought suits against the company.

Black Sand noted that "similar suits by dissatisfied policyholders may follow". The six had sued for the return of money they invested in CLICO.

Black Sand said it understood that in the aftermath of the intervention, the T&T government entered into an agreement with the CL Financial Group, pursuant to which the government gave assurances of payment to depositors and policyholders in three CL subsidiaries, namely: CLICO, CLICO Investment Bank and British American Insurance Company.

Severe financial loss

"We believe it is significant that the T&T government undertook to discharge CLICO's obligations over a 20-year period without interest, thereby imposing a severe financial loss to those policyholders," said Black Sand in the circular to Lascelles shareholders. Black Sand said that stance against policyholders suggested the government was unlikely to provide further aid to CLICO or other members of the CL Financial Group in relation to the debt package.

"We believe it would be difficult to justify asking policyholders to take a substantial cut in policy sums contractually due, whilst bailing out Lawrence Duprey and other CL shareholders by paying off or otherwise assisting CL Financial with its debts," said the circular.

Consequently, "Lascelles is the most obvious source of assistance for the ailing CL Financial Group," the notice said, pointing to the dividend payout and the possible sale of the Carreras shares.

It questioned whether the current Lascelles board, several directors of whom are nominees of the T&T government, could resist the temptation to act in the interest of the CL Financial Group.

"Or can they be trusted to act, as they should, in the wider interest of all Lascelles shareholders as a whole?"

Black Sand noted that previous attempts by the board to create a charge over the assets of Lascelles to no discernible benefit of Lascelles or its minority shareholders were also troubling.

Lascelles has said it will respond to the hostile bid via a director's circular.


Source:
McPherse Thompson, Assistant Editor - Business
mcpherse.thompson@gleanerjm.com
Jamaica Gleaner
Wednesday August 10, 2011

http://jamaica-gleaner.com/gleaner/20110810/business/business1.html