Oct 2016 Financial News

Acquisition positions Agostini's for future

Oct 06, 2016

For the better part of 90 years, the name Agostini has been synonymous with the business of trade in Trinidad and Tobago. Founded in 1925 by Johnnie Agostini, the company has grown from a small commission agency, to a billion-dollar conglomerate with over 1,800 employees and subsidiary companies involved in the retail, distribution, pharmaceutical, contracting services, interior design and industrial space.

In 2010, the company was itself acquired by Victor E Mouttet Limited (VEML) and became a subsidiary of the VEML group. Despite the challenges of operating in the current economic environment, Anthony Agostini, managing director, is not about to baton down the hatches and cower in the face of the prevailing economic headwinds.

Operating in an environment with an uncertain macro-economic outlook, Agostini holds the view that many opportunities still exist for his business to grow and thrive, and ensure sustainability for the next 90 years and beyond. Speaking at the company’s head office in Victoria Avenue, Port-of-Spain, Agostini embodies the character of the seasoned businessman. Calm, and measured in his words, the 62-year old executive exudes a strong sense of confidence about the future of the company that bears his name.

Questioned about where the company is today, and where it’s going, Agostini said: “We have certainly grown over a period of time and diversified. We’ve done a number of partnerships to get us to the point where we are today. In July 2015 we entered into a joint venture agreement with Goddard (a publiclytraded Barbados-based company) where we put together the FMCG (fast-moving consumer goods) companies of both groups under one company, and now we are moving ahead with further acquisitions in that area. So we are in a pretty good place particularly with our investments in the FMCG area and outside of Trinidad.”

Given the economic contraction in the domestic market, and with many territories in the Caribbean region experiencing slow or no growth, Agostini’s, with its diversified range of operations is by no means isolated from the effects associated with the current economic realities.

Probed about how the group has been coping with the present circumstances, Agostini said: “The economy has certainly slowed but for the most part we’ve been able to weather that storm. Our third quarter results show that we’re a little bit down on last year’s performance, but not doing too badly at all given the overall circumstances.”

Questioned about the company’s performance in specific segments, Agostini noted that overall, it was a mixed bag. He said: “Products that were geared towards the luxury end of the market tend to experience more of a pull back than products targeted more toward the mid-market area. So we’re constantly examining our product profile and making the necessary changes as demand for them evolves.”

Commenting on the performance of its subsidiary in the energy services sector, Rosco Petrovance, Agostini noted that its performance was somewhat more subdued. He said: “Rosco Petrovance has been down a bit over the last two years or so because there’s not as much work in the energy sector as before. We diversified the company a bit with the addition of Exxon Mobil lubricants to its portfolio which has been building traction in the market. The energy sector is still very slow and will probably be so for the next couple of years, but we’re optimistic about our positioning in that area for the future. We’re still relatively small in that area so we’re exploring ways of building out our capacity there.”

At its core, Agostini’s is primarily a distribution company. The lifeblood of companies of such nature tends to be access to foreign exchange and in sufficient quantities to meet with business demands.

Asked about how the company has managed in this area, Agostini said: “Access to US dollars has certainly been a challenge, but we’re no different to many other companies in that regard. We have been able to keep our heads above water as it were and with some manufacturing coming into the group by way of acquisitions we expect to generate more foreign exchange through export of those products.”

In a circular to shareholders dated 18th August, 2016, Agostini’s announced its intention, pending shareholder approval, to acquire VEMCO Limited, one of the largest food manufacturing and distribution companies in Trinidad, from VEML.

According to the terms of the deal, Agostini’s would issue 10,399,530 new shares of common stock to VEML with its joint venture partner Goddard’s paying $88.6 million for its 50 per cent share of the value of the VEMCO acquisition. (A valuation done by KPMG Barbados concluded that VEMCO’s fair enterprise value was $277.9 million and its market value, net of debt, was $177.3 million). VEMCO would then become a holding of the joint venture company set up by Agostini’s and Goddard’s to manage the FMCG companies of both groups, Caribbean Distribution Partners Limited (CDPL), which currently oversees six FMCG companies. The purchase of VEMCO was approved by shareholders at a special meeting held on 23rd September, 2016.

Of significance to this transaction is the fact that VEML is both the parent company of VEMCO and the major shareholder in and effective parent of Agostini’s. On completion of the acquisition VEML stake in Agostini’s moves from 50.3 per cent to 57.78 per cent.

Questioned about the evolution of the VEMCO Transaction, Agostini said: “VEML offered us the opportunity to purchase VEMCO and we took it to our joint venture partner Goddard’s and said ‘look, we have this offer, do we want to consider it for our joint venture operation?’ We collectively agreed that it was a good offer to look at and we moved forward by having it valued by KPMG Barbados who valued all the other companies that came into the joint venture operation. So everything was done very much at arms-length.”

Agostini added that in order to assuage any possible external concerns of perceived conflict, Christian Mouttet, who is both a director of Agostini’s and CEO of VEML (as well as chairman of Prestige Holdings Limited) decided to recuse himself from any board discussions on the transaction.

He said: “Mr. Mouttet was not involved at the board level when we assessed the merits of the acquisition. We set up a sub-committee to consider the transaction and Mr. Mouttet was not part of these deliberations.”

Going further, Agostini pointed out that having Goddard’s as a 50 per cent partner in the transaction provided an even greater level of rigour to the process. He said: “Having Goddard’s as a partner in the acquisition was beneficial to the extent that they would have been looking out probably even more so than us to ensure that we were getting it (VEMCO) at the right value.”

Questioned about the benefits to the Agostini’s group of acquiring VEMCO, Agostini said they were multiple. He said: “Firstly, we would be acquiring two manufacturing operations in Swiss and Catelli that are exported to over sixteen regional territories. These two alone would bolster our foreign exchange earnings to help support our distribution businesses.

“Also, CDPL would be able to benefit from VEMCO’s established distribution networks for export and as a result their logistics capabilities for our own brands like Moo! Dairy products. We will also now be able to benefit from the cost savings associated with regional purchasing, sharing a common IT infrastructure and sharing back-office expenses.”

As a result of the issuance of new stock to purchase VEMCO, current shareholders of Agostini’s experienced a 13 per cent dilution of their interest in the company. Asked about what mechanisms were being put in place to ensure that shareholders were not disadvantaged, Agostini pointed out that though there was some dilution, the acquisition starts repaying itself from day one. He said: “The acquisition is actually accretive to earnings from day one. The multiple we bought VEMCO at is a much smaller multiple than what Agostini’s stock currently trades for, so its contribution to earnings begins almost immediately.”

Commenting on shareholders not being disadvantaged, Agostini noted that all the legwork and due diligence involved in analyzing the acquisition ultimately redounded to the benefit of shareholders. He said: “All of the work we did in assessing the merits of this purchase and any disadvantage to shareholders would have taken place while we were deliberating whether this acquisition made sense for our joint venture. To even arrive at a fair value for the shares being offered we hired Deloitte & Touche to perform an independent valuation of the shares. They valued the shares at $16.81 per share and the share price quoted up to the date that we sent out the circular was $17.05 which was the price we used in the offering of the shares for the VEMCO acquisition, as the higher price is favourable to our minority shareholders.”

 

Source:
ANDRE WORRELL
andre.worrell@guardian.co.tt
Business Guardian, BG6 and BG7
Thursday October 6, 2016