Nov 2006 Financial News

DB&G acquisition is good for BNS, says Peart

Nov 20, 2006

Gary Peart, President of Mayberry Investments, believes that the Bank of Nova Scotia (BNS) should acquire brokerage house, Dehring Bunting & Golding (DB&G), whether or not it acquires the minimum 75 per cent stake it bidded for.

"Our research suggests that the Bank of Nova Scotia and [its subsidiary] Scotiabank Jamaica should be able to get at least 60 per cent of Dehring Bunting & Golding (DB&G) shares. If that is true, why should they walk away from the deal?" Peart asks this question as the November 27th deadline for the BNS offer for not less than 75 per cent of DB&G shares draws closer.

In previously published reports, William Clark, president of Scotiabank Jamaica has stated that if the deal does not meet the minimum requirement, his group is prepared to walk away from DB&G and begin the search for another brokerage house.
"We are in the mood to buy," Clark stated in Wednesday's Business Observer.

However, Peart doesn't think it is as cut and dry as that.
"Clark wants to increase his revenue stream. He is not just after a brokerage licence. If that were so, then why not buy one of the smaller stockbrokers?"
Peart is of the opinion that what BNS wants is a proven money-maker - a firm that does well regardless of the economy.
"Peter Bunting, Mark Golding and Gary Sinclair have a good track record of making money. And so it is interesting that the deal is based on net interest income," says Peart.

In the offer document, it states that "the key DB&G principals (Bunting, Golding and Sinclair) for the two years following the completion of the transaction will be jointly and severally guaranteed to the offerer (BNS/Scotiabank) that the average annual core earnings of DB&G will not be less than $640 million."

Peart sees that as the linchpin.
"The core earnings are based on interest income, but DB&G earns money from bond and other securities trading. And they have done this consistently since inception. You can't exclude those earnings from a brokerage house," says Peart, who thinks that the $640 million is a target that is relatively easily met by the principals. "That is the critical point. Clark wants to increase his bank's revenue stream. What other brokerage house can deliver that?" Peart questions.

Which brings Peart to the crux of his argument.
"When we look at the transaction, the $21.08 offer price is fair to the major shareholders because of the volume they hold. However, it is only natural that smaller shareholders will want a premium. But I am not arguing that BNS should pay more," Peart says. "However, based on the way the deal is structured, it will be difficult for BNS to get the 75 per cent it wants."

"In my opinion, why not do the deal with the 60 per cent already in hand? The fact is, once BNS is on board, whoever is left with shares will do well. There is a lot of value embedded in company," Peart notes. "This deal is about making money. It's an opportunity for all involved."

Dennise Williams
The Jamaica Observer
Sunday, November 19, 2006
http://www.jamaicaobserver.com/magazines/Business/html/20061118T150000-0500_115471_OBS_DB_G_ACQUISITION_IS_GOOD_FOR_BNS__SAYS_PEART__.asp