Oct 2006 Financial News

BNS could face bidding war for DB&G

Oct 11, 2006

The Bank of Nova Scotia could face a bidding war with other financial institutions interested in acquiring majority stake in Dehring Bunting & Golding (DB&G) if the brokerage house's minority shareholders reject BNS' offer price that reliable Business Observer sources say could be anywhere between $18 and $20 per share.

"I expect a bidding war to take place," said financial analyst and DB&G shareholder John Jackson. "This could be a real test of competition in Jamaica."
Jackson was responding to industry speculation that other financial entities could make bids for DB&G, a move that would push up its share price.

"If the BNS offer price is too low, Life of Jamaica, RBTT Bank, Clico out of Trinidad & Tobago, Guardian Holdings Limited and even Jamaica Money Market Brokers could come in and make a bid," said Jackson.

"It is not going to be a walkover to get the rest of the outstanding shares at $18-$20," he added. "By next year, I expect that DB&G will be worth $40 per share."
Jackson believes that LOJ, through its subsidiary Pan Caribbean Financial Services (PCFS) and JMMB would benefit greatly from acquiring DB&G. "DB&G has assets that JMMB doesn't have," he argued. "The unit trust and the merchant bank would give JMMB a nice hold in the investment market. Plus, for PCFS, while they don't need the stock brokerage licence, they would have more flexibility in their unit trust business. Plus, PCFS could take DB&G clientele, collapse unneeded branches and get rid of overheads."

The principals of the firm - Chris Dehring, Peter Bunting and Mark Golding - control 74.5 million (28 per cent) of the 303 million outstanding DB&G shares, according to information in the company's 2006 annual report. "BNS' next step is to make an offer to the non-aligned minority shareholders," one highly placed source said.
Last month, Scotia Bank confirmed a Business Observer report that the bank had entered into acquisition talks with DB&G. The move, industry analysts said, was an apparent bid by Scotia to grow its wealth management division.

News of the acquisition talks sparked a 14.91 per cent jump in DB&G's share price on the Jamaica Stock Exchange the day the story appeared, and the following day, the JSE suspended trading for the day in both Scotia and DB&G shares to allow the market to absorb the information.

Shareholders that are not aligned with the founding principals are Life of Jamaica Pooled Equity Fund No 1 with 15.2 million shares, and the National Insurance Fund, which has 15.2 million shares.

A highly placed broker who requested anonymity told the Business Observer that these large institutions must be convinced to sell in order for the deal to be complete. He also said that the completion of the deal hinges on the co-operation of the minority shareholders.

"DB&G is widely held, therefore BNS would have to bring on board not just the original founders of the company, but institutional investors with large holdings to acquire a controlling stake," he said. Jackson questioned why the principals would even bother selling. "My understanding is that the agreement with BNS calls for the principals to stay on for the next three years," he said. "However, during that time, the Bank of Jamaica should achieve its objective of getting interest rates at 10 per cent or even lower. This will force money out of the fixed income instruments and into the stock market. This will send up stock prices. With that background, I can't see the logic in all the principals jumping ship. They don't need the cash."

One industry analyst speculated that once the deal is done, BNS will delist DB&G and absorb all of their customers. Jackson shared that view. "It suits BNS to try and get 100 per cent of the shares and delist the company," he said. "BNS can get economies of scale by closing some of DB&G's branches and getting rid of DB&G Merchant Bank, which Scotia doesn't need."

BNS and DB&G executives had declined to comment on the issue. One financial analyst, however, speculated that the 74.5 million shares owned by the DB&G principals could be worth between $1.341 billion and $1.49 billion. The spotlight, he said, was now on the minority shareholders who control over 228.7 million shares.

"The minority shareholders will want a higher price," he said, adding that word in financial circles is that the minority shareholders are divided into two groups - one that will not take a cash offer of $18 to $19 but instead request a share swop of 1.25 BNS share for every one DB&G share, while the other camp is requesting as high as $40 for each DB&G share.

"A share swop would cost BNS less than trading cash," said the analyst.
Another investment broker agreed, saying that this represented the best deal. "Instead of getting cash to reinvest, you would get shares in BNS, a company that is a good investment. This reduces your reinvestment risk," he explained.

Jackson made it clear that he was in the second group. "I am in the camp that wants $30 to $40 for DB&G," he said. "And so, if the price is right, I have no problem selling."


Source:

Dennise Williams
The Jamaica Business Observer
Wednesday 11th October, 2006

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