Mar 2007 Financial News

Shareholders approve BNS reconstruction scheme

Mar 02, 2007

Minority share-holders gave Scotia-bank Jamaica the greenlight at its extraordinary general meeting on Wednesday to proceed with its Reconstruction Scheme which will result in the creation of a new holding company, Scotia Group.

A combined 90 per cent of the shareholders - representing approximately two thirds of the minority stockholders along with Scotiabank's parent company, BNS Canada - voted in favour of the scheme of arrangement at the EGM, which followed the bank's annual general meeting at The Jamaica Pegasus.

BNS Canada controls 70 per cent of its local subsidiary's stockholding, but the scheme of arrangement required a 75 per cent shareholders' approval.

The mechanics of the Scheme of Reconstruction are:

The exchange of ordinary BNSJ shares for the same number of ordinary shares in Scotia Group Jamaica Limited.

Scotia Group listing on the Jamaica Stock Exchange, with its ordinary shares traded.

As the holding company, Scotia Group will own 100 per cent of the ordinary shares of BNSJ and 68.54 per cent of the shares of the DB&G.

Shareholders will also receive, as a bonus issue, one preference share in Scotiabank for every 30 ordinary shares they hold.

Quarterly dividends will be paid on the Scotia Group ordinary shares, similar to the quarterly dividends paid on BNSJ ordinary shares.

Certificates for BNSJ ordinary shares will be cancelled and shareholders will receive new share certificates for ordinary shares in Scotia Group.

The approval of the scheme by minority shareholders, in particular, came as an anticlimax, given rumours floating prior to the EGM of plans by a consortium of minority interests, including unrelated institutional investors, to vote down the proposal.

"A number of pension fund managers and institutional investors plan to vote against it," a senior executive from a non-banking institution, who requested anonymity, told the Financial Gleaner ahead of the EGM.

Share issue controversy

Atthe centre of the controversy is the Scotia Group's decision to issue fully-paid additional BNS ordinary shares to BNS Canada for the latter's contribution to the purchase ($3.4 billion) of the DB&G shares as well as the professional costs involved in the acquisition of the merchant bank and investment company.

The additional shares will be priced at $19.76, which BNSJ says "was the average market price of a BNSJ share for the six month period prior to the date when the Joint Bid Agreement between BNS and BNSJ was negotiated and agreed to."

But, according to the executive, "We didn't get - particularly at the investors' briefing last week - the basis for the valuation; in fact some pension fund managers think that the price that BNS Canada is getting for the shares is too low."

Vice-president of Pan Caribbean Financial Services, Steven Gooden, expressed a similar sentiment at the EGM.

Average

"I don't have a problem with the fundamental intent of the scheme, but I don't think it is fair to use the six months average because the market was bearish at that period and also because of the inefficiencies associated with our local stock exchange," said Gooden, who is also general manager of Pan Caribbean Asset Management.

In fact, Gooden, as proxy for the 70 million BNS shares held by Sigma and its parent company, Life of Jamaica, voted against the Scheme of Arrangement, arguing that, in the interest of transparency, BNS should have either sought ought an independent fair value opinion or at least allow minority shareholders to tender for new shares at the $19.76 price at which BNS Canada got the additional shares.

BNSJ chairman, Robert Pitfield, told shareholders that there were "no machinations" involved in the Scheme of Reconstruction, but some shareholders remained dissatisfied.

"We know we can't stop [the scheme] being approved, but we want to send a signal to listed companies and BNS that they can't just ram things down people's throat. Because once you turn off shareholders it canhave a negative impact on your stock price. That's what happened to DB&G a couple years back when they had that executive compensation plan," noted a representative from a pension fund.

Source:
Ashford W. Meikle, Business Reporter
The Jamaica Gleaner
Friday 2nd March, 2007

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