Jan 2008 Financial News

What's the value of the Appleton Rum brand? - US$500m to US$600m, says Angostura broker

Jan 18, 2008

Market analysts this week were critical of the valuations proferred to shareholders by the directors of takeover target Lascelles deMercado, saying that the published figures gave no precise reading of the real value of the group's coveted Appleton Rum brand.

Like several market players who have reviewed the directors' circular to shareholders but preferred not to speak on the record, the outspoken John Jackson described the approach to the valuation as "inadequate", pointing particularly to its failure to assign a value to Appleton's aged rums.

However, Jackson, a chartered accountant who also publishes the magazine, Investor's Choice, conceded that arriving at such a valuation "might have been difficult".

Gary Peart, chief executive officer at Mayberry Investments Limited, lead broker for Lascelles' suitor, Angostura Holdings, says they estimate Appleton's value at between US$500 and US$600 million.

Net asset value

That projection varies with Lascelles' estimate of its own net asset value, which the company, at September 30, placed at $467 million or US$5.40 per share. The value covers the entire Lascelles deMercado group, including its 10 principal subsidiaries.

Peart says the value Angostura sees in Appleton is represented in the substantial US$10.65 per share price the Trinidadian firms bid for Lascelles.

Essentially, Angostura values Lascelles at twice what the conglomerate estimates to be its own worth.

Wray and Nephew, the fully owned subsidiary of Lascelles which owns the rum brand, sells 1.2 million cases of Appleton per year.

No comment was immediately forthcoming from the group, whose managing director William McConnell was said to be away from office.

But Mayberry's Peart, as Jackson conceded, says valuing a brand such as Appleton is a difficult and even subjective exercise.

Financial clout

The weight given to a brand is often dependent on the company having the financial clout to market its products to build equity in the brand.

"Extracting brand value depends on who is doing the extracting," said Peart.

Angostura and related company Clico already own 4.96 per cent or 4.76 million of Lascelles shares - more than two million of which were acquired in the six months prior to the takeover bid, according to the Trinidad company's offer document.

The deal values Lascelles on a per share basis at US$1.02 billion. But assuming a full take up of the offer by minority shareholders who hold 81.7 million shares, Angostura would only be paying out between US$735 million and US$870 million to acquire the company.

Good producers

Angostura has made it clear that it does not want to buy out all shareholders. It already has a deal to acquire the controlling stocks held by Lascelles CEO, Billy McConnell and chairman George Ashenheim.

"Let me give you our word - I will guarantee this - if you stay in, the rate of the returns you would be getting would be higher than any other stock on the stock exchange, either here or in Trinidad," said Chairman Lawrence Duprey at a investors luncheon in Kingston 10 days ago.

Added Duprey: "And it follows, because we are going to market globally. We have a strong product. We are good producers."

Peart said on Tuesday that take up of the offer had been slow, and that many pension funds seemed to be holding on to their shares.

Mayberry, he said, is still to decide whether to accept the offer for its own shares; but if it does, the broker is unlike to sell all its stock.

Securities regulations governing takeovers and mergers, specifically section 19, puts the onus on the takeover target or the 'offeree' to guide shareholders, which includes, but is not exclusive to, the presentation of recent valuations of the company.

Lascelles presented three:

From overseas firm Greystone Capital Partners which valued the company against its peers;

From insurance subsidiary Globe - which is itself part of the takeover - which assessed the conglomerate's fixed assets; and Lascelles group's own estimate of the company's real estate and net asset value.

Marlene Street-Forrest, general manager of the Jamaica Stock Exchange, said the JSE was satisfied with the Greystone valuation.

Jackson, the financial analyst, was not impressed with the latter two.

"It falls short of what should be presented to shareholders," he told the Financial Gleaner.

Jackson says that by basing the estimates on the insurance value of Lascelles' fixed assets, the valuation would not have captured the group's handholdings, essentially undervaluing the conglomerate's chief asset, Appleton, which runs a sugar estate in St. Elizabeth where its rums are distilled.

Lascelles in its director's circular sought no outside valuation for its lands, estimated at 95.8 million hectares. Instead, it relied on the sale prices of properties in the vicinity to estimate their worth.

Greystone puts Lascelles enterprise value at US$535 million or US$5.57 per share worse case and US$860 million or US$8.96 million per share best case.

Globe's assessment of the fixed assets is US$179.6 million.

Lascelles estimates its own value at US$467 million.

Angostura says in its offer document that it used the spirits industry PE ratio of 25/24 in its valuation of Lascelles.

While he has no issue with Angostura's methodology in the valuation, Jackson disagrees with the numbers put forward by the Lascelles directors as the conglomerate's net asset value.

The approach at arriving at the numbers, he insists, should have involved a third party.

The insurance replacement methodology, Jackson says, places a value on the Lascelles-owned buildings and equipment but does not factor in the landholdings.

"Where is the land in the equation?" he asks, which some in the industry believe is not insurable.


Source:
Susan Gordon, Business Reporter
susan.gordon@gleanerjm.com
Jamaica Gleaner
Friday January 18, 2008

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