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Poison pill

Economist raises red flags as regulators review BHL bid

In the wake of concerns raised by the company’s shareholders, lawyers for the Financial Services Commission (FSC) are said to be closely scrutinizing the planned sale of this island’s largest beverage manufacturer, Banks Holding Limited (BHL).

This as the bidding war between two foreign beverage giants becomes increasingly hostile.

Barbados TODAY understands that recent developments, have raised the interest of the FSC and its officials and they have now asked their lawyers to review the situation with a view to ensuring that shareholders’ interests are protected.

At the same time, leading economist Dr Justin Robinson is warning that a negative outcome to the bidding war could set back the capital market by decades as he suggested that the directors of BHL might have some questions to answer.

The battle between AMBEV, the largest brewery in Latin America, and the Trinidad and Tobago conglomerate ANSA McAL took an interesting twist yesterday after BHL directors revealed that a June 2010 agreement with AMBEV for a US$28 million loan to build the new brewery in Newton, Christ Church, would make it near impossible for any other company to take control of BHL.

Robinson, the dean of the Faculty of Social Sciences at the University of the West Indies, Cave Hill Campus, described the agreement as a “poison pill”, while arguing that it would have been better for BHL directors to fully disclose the terms of the agreement to shareholders from the start.

“Essentially poison pills are agreements, contracts and other devices and strategies that make it more difficult or expensive for a hostile takeover to occur. In this case there are $132. 50 million shares that AMBEV has. Any buyer who acquires 25 per cent or more of BHL, AMBEV has the right to enforce the sale of its $132.50 million shares at a price of ten dollars, which clearly then makes it more expensive for any potential acquirer,” he told Barbados TODAY.

Robinson acknowledged that AMBEV’s intent was to acquire significant shareholding in BHL when it swapped its debt into shares back in September.

“It certainly suggests to me that the then directors of BHL were at that point supportive of a greater strategic relationship with AMBEV, otherwise it is difficult to explain those clauses [in the June 2010 agreement].”

He suggested this move had left the door open for directors’ actions to be called into question.

“It would be interesting to find out exactly what did the shareholders know about these clauses and did they agree to them. These clauses have been negotiated with the then directors and it would be interesting to hear from them why they thought that those clauses and contracts were in the best interest of the company and the shareholders.”

In a statement yesterday the Concerned Shareholders Group blasted BHL directors for recommending that they take up the $5.20 share price offered by AMBEV, which is lower than the $6 bid on the table by ANSA McAL.

“Why would the BHL Board think it is in the best interest of its shareholders to accept a lower offer than is currently on the table?

“In addition, has the BHL board fully taken into AMBEV; track record, of their destruction of indigenous brands and anti-worker history?,” they questioned.

Dr Robinson said the only option left for the dissatisfied group was to call a special shareholders’ meeting to discuss the matter.

He however warned that the “distrust created by the issues arising in the takeover bid could erode investor trust in public corporations.

“With all this suspicion are investors going to be willing to take their savings off the bank and put it in public companies when these matters play out in this fashion? It could really shake investor confidence in the governance of public companies.  It could really set back the capital market by decades.”

Nonetheless, Robinson said there was no reason for ANSA McAL to withdraw from the bid, once the Trinidad company could afford to pay as high as $10 for AMBEV shares and still have a profitable investment.

He however warned that as the current bidding war persists, there could be negative consequences.

“If BHL is taken over at a very high price, because the investors still have to make their money back, you begin to get concerns about the possibility of plant closures, layoffs, and other cost cutting measures,” Robinson said.

In a statement this evening, ANSA McAL blasted the BHL board for suggesting that shareholders might have no other choice but to sell to AMBEV, while declaring that its $6 offer stands.

Insisting that the BHL directors could not force shareholders to sell to AMBEV, the Trinidadian conglomerate said “it would be challenging the validity of the BHL- SLU agreement.

“We will utilize all means available to us to ensure that this is not detrimental to BHL shareholders,” assured president and chief executive officer of ANSA McAL (Barbados) Ltd Nicholas Mouttett.

2 Responses to Poison pill

  1. Duane Burke
    Duane Burke October 31, 2015 at 3:07 am

    Ambev was not on the scene in 2010. Which makes this worse since the arrangement was made with an entity that could subsequently (and did ) change hands. I have long opined that minority shareholder protection is non existent, in reality.

  2. Colin Daniel November 1, 2015 at 12:57 pm

    BHL shareholders are not obligated to accept any of these bids. The directors need to explain why the details of this poison pill provision was not disclosed in the notes to the financial statements. This is material information. Finally, at June 2015, BHL earnings per share was $0.26 per share, I would be crazy to recommend to anyone to purchase the AMBEV shares are $10 per share. AMBEV/SLU currently own 40.7% of the 64,853,760 of the outstanding shares and are entitled to convert the outstanding notes for another 750,000 shares. The conversion price is $4 per share which was what it seems that they paid Massy. The Massy share holders should be up in arms about this let alone the Barbadian shareholders of BHL.


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