Sep 2012 Financial News

Lascelles acquisition extends 40-year partnership

Sep 05, 2012

Campari Group plans to delist Lascelles deMercado and Company once it hits its target of a full taker.

Executives of the Italian company said shareholders could invest instead in Campari shares, which are listed on Italian stock exchange, to continue benefiting from the earnings of Lascelles.

Campari is 51 per cent owned by the Garavoglia Italian family and remainder in the hands of minority shareholders.

Campari will spend up to US$415 million to acquire 100 per cent of Lascelles' shares. It already has a lock on 81.4 per cent of the shares under an agreement reached Sunday with Trinidad-based CL Financial Group.

Gunning for full ownership

Campari will make a formal bid before yearend for all of the shares in what a market filing by Lascelles describes as "an offer from a serious source". It requires a take-up of 90 per cent of the offer to delist, but is gunning for full ownership.

"So US$415 million is assuming everyone will sell their shares. It will be the total consideration that we pay," said Stefano Saccardi, Campari's business development officer and general counsel in an exclusive interview with Wednesday Business at Lascelles' head office in New Kingston on Monday.

Saccardi expects shareholders to accept the US$4.32 per ordinary share price - which represents a 41 per cent premium on Friday's closing price, according to Wednesday Business estimates.

"So we think it is attractive for shareholders," he said.

But since news of the acquisition went public, the Lascelles stock has jumped from J$275 to J$350 or US$3.90, eliminating some of the premium.

Lascelles is an old company, which turned 98 this year - it was incorporated on August 31, 1914 according to Companies Office records - but its most prized asset and the draw for investors is its 187-year-old subsidiary Wray & Nephew Limited and the 263-year-old rum brand, Appleton, that it owns.

Earlier this year, Trinidad-based CL Financial, which bought Lascelles in 2008, approached Campari and negotiations began shortly thereafter in New York, according to Saccardi.

"The negotiations were conducted with a positive spirit, where both parties understood what the other needed," he said.

The deal, the third-largest in Campari's 150-year history, was negotiated in six months. Essentially, Campari wanted its own rum brand and Trinidad-based CL Financial wanted the funds.

"Everybody knew we were interested in buying this asset. So when a decision was made to sell it, we were logically among the parties contacted," he said.

The relationship between Lascelles and Campari spans more than 40 years when it licensed Jamaica to produce Campari spirit for the Caribbean market. In prior years, Campari Group tried unsuccessfully to purchase Lascelles, Saccardi revealed.

"In mergers and acquisitions you need to do things quickly otherwise you get lost in the detail. So I would say it was a typical acquisition," he said.

Campari aims to grow the Appleton brand in North and South America, Australia and Italy. Saccardi said that Campari, the world's sixth-largest spirits brand, has previously transformed local brands, including Skyy Vodka, into global brands.

"Rum is growing worldwide and the rums here are world-class. It's a great rum, a great story, a great company and people. What was missed so far was an association with an international player that has routes to market," said Saccardi, who cautioned that growth will take time in order to acclimatise consumers in new markets with the product.

"In the spirits industry you really need to have a big routes to market and a company that sells the brands to the main markets. That is why we can add value," he said.

Campari will acquire the two sweetest segments of Lascelles - its rum and merchandise units. The remaining three segments including transportation, insurance and investments will be sold to other parties prior to the acquisition.

The rum and merchandise units are Lascelles' top revenue-generating segments, earning J$15.1 billion and J$3.3 billion, respectively, over nine months ending June 2012.

The rum segment includes the cultivation, ageing, bottling, distribution and export of alcoholic products. The merchandise division includes the manufacture and distribution of household, agricultural chemical and pharmaceutical products.

It's Campari's first rum acquisition under its wide spirits portfolio with brands sold in over 190 countries. Campari will invest a yet-to-be-determined sum to upgrade the plant and facilities, said Saccardi.

The Italian company is also mulling a name change of the Lascelles group to Campari Jamaica but will definitely keep the Wray & Nephew and Appleton brand names.

"At the time when we close our transaction, we will find in Lascelles only the spirits and merchandise segments. The other businesses will have gone by that time," said Saccardi, who is also Campari's head of mergers and acquisitions.

"They are being sold to third parties," he said.

Saccardi said the name change to Campari Jamaica, which would align the brand, remained under consideration.

"But we will not change the Wray & Nephew brand. That bears a lot of heritage and tradition. We will not change that name," he said.

In July, Lascelles identified a Trinidad-based Insurance company as a preferred buyer to acquire its insurance arm, Globe Insurance. On Monday, Lascelles management said it expected to conclude the sale of its other segments to meet this year's deadline.

"Between now and the close of the year we will divest other segments," Fraser Thornton, managing director at Lascelles deMercado, said Monday. "That process has been under way for some time now."

Winning team

Campari on Monday described the current management of Lascelles as "a winning team" and said there are no plans to cut staff.

Thornton, a Scotsman recruited by Trinidad to run the company, said he would remain as CEO of the Lascelles Group if asked by Campari.

"I have enjoyed my time here. If there is an opportunity to continue I will," said Thornton. "I think that Campari will be a very good 'acquirer' for the business. The business and employees can only benefit from a larger player who can clearly add value," said Thornton.

The acquisition will double the size of Campari's workforce from 2,300 to 4,300.

CL Financial — which is in deep financial turmoil and was rescued by the Trinidad government in January 2009 - went in search of a buyer for Lascelles in part because it needed cash to pay back bondholders, who helped finance its acquisition of Lascelles.

"The bondholders are a matter for CL to comment on but I have to believe that bondholders will be paid out in full," Thornton said.


Source:
Steven Jackson, Business Reporter
steven.jackson@gleanerjm.com
Jamaica Gleaner
Wednesday September 5, 2012

http://jamaica-gleaner.com/gleaner/20120905/business/business1.html