Using the resources of various subsidiaries and assuming a huge amount of debt, the CL Financial Group eventually acquired more than 86% of the shareholding of Lascelles de Mercado (LDM) in 2008. The average price that was paid for the company was more than twice its stock market value at the time. It was probably one of Mr. Lawrence Duprey's expectations that asset sales, such as Carreras, would help repay the debt assumed. In addition, it was anticipated that LDM would orchestrate a merger of its Wray & Nephew subsidiary with Angostura Holdings Limited. Up to and including 24th May 2012, Lascelles de Mercado owned 74,263,144 shares in Carreras Limited, which is a subsidiary of BAT Industries Limited, which is the same company that controls WITCO. Both Carreras and WITCO are in the tobacco business.
he share ownership by LDM in Carreras represented 15.3% of the total outstanding shares of 485,440,000. An investor sitting on such a significant holding would ensure that every effort would be made to dispose of this asset at the best possible price. The majority shares (86%+) of LDM are owned by companies that are subsidiaries of CL Financial Limited, which at least until 31st December 2012, is under the control and direction of the Government of Trinidad & Tobago. In the several months prior to 24th May 2012, Carreras Limited generally traded at prices above J$60.00. On 21st May 2012, 15,062 shares changed hands at J$60.02. Then, suddenly, on 25th May 2012, 66,129,422 shares traded at J$50.00. This was followed on 28th May 2012, by trades of 1,195,841 shares at the same price of J$50.00. Next, on 30th May 2012, 3,775,473 shares moved at J$50.00. The last significant trade was 4,252,210 shares on 31st May 2012, leaving the closing price at J$50.02. The total of these trades over these four trading days was 75,352,946. It was safe to assume that the largest seller of Carreras's shares was LDM. Subsequently, this was confirmed when LDM released its interim results for the nine-month period ended June 2012. In the narrative accompanying this report, the following statement is recorded: "The net profit materially increased with the generation of other income totalling J$4,070m.
This primarily represents gains on the sale of equities and reflects the continuing execution of our strategy to release capital from non core activities and investments." The report to LDM shareholders made no specific mention that the company's shares in Carreras were sold in May 2012. Moreover, in the context of a recent market price of J$57.00 and prices above J$60.00 for the past year or so, the attained selling price of J$50.00 was not explained. In all likelihood, the sheer size of the transactions meant that buyers for the 74 million-plus shares would have had to be pre-arranged before the shares were placed on the exchange. If such a large volume of shares were suddenly put on the market, the price would have most likely fallen sharply; in that case, the realised price could have been significantly lower. These extraordinary results reflected half-year earnings per share of J$60.43. On that basis, LDM decided to declare a special dividend of J$31.25, which would be paid on 31st August 2012. The four main beneficiaries to this payout are all CL Financial subsidiaries. Using an exchange rate of J$13.7 to TT$1.00, the dividends to the various companies are shown in the table.
Number ofshares in LDM
Dividend in J$
Dividend in TT$
If we look back at the last two years or so, LDM has paid out high dividends, even as its share price has declined. For 2011, Lascelles paid a total dividend of J$42.20. In May 2012, ama dividend of J$9.00 was paid. On 24th August 2011, the share price was J$318.00 and it closed on 13th August 2012 at J$241.08. As a direct result of this significant share sale, LDM's investment assets declined from J$8.25 billion as at September 2011 to J$2.49 billion as at the end of June 2012. However, total assets increased marginally, or from J$36.9 billion last September to J$37.1 billion in June 2012. Not unexpectedly, cash resources improved dramatically from last September's J$5.65 billion to this June's J$10.22 billion. Aside from paying out huge dividends, the company has to allocate these new funds to generate some returns to shareholders. Let us take a look at the distribution of revenue and profit from the group's various business lines for the first three quarters ending in June 2012. As previously noted, the star performer was the investments division, which saw its pre-tax profits increase from less than J$400 million in 2011 to a very robust J$3,923 million. Distilled spirits and sugar also contributed a commendable J$1.9 billion up from last period's J$1.4 billion.
The general insurance division's expanded from J$357 million to a very respectable J$620 million. A big disappointment was the loss incurred by the transportation services units; from a profit of J$59 million, we saw this unit's contribution decline to a loss of J$104 million. Also experiencing challenging results was the general merchandise division; in this case, the profit contribution contracted to J$99 million down from last period's J$300 million. One expects that corrective measures are already in place to help restore the results from these two units. Another major asset that is soon expected to be sold is Lascelles' investment in Globe Insurance Company of Jamaica Limited. On 30th May 2012, LDM released a statement that confirmed that several companies had expressed an interest in negotiating for the purchase of Globe. The release went on "The Board of Lascelles, de Mercado & Co. Ltd. instructed its advisors to identify and of those interested parties as a preferred party and allow them the opportunity to undertake full due diligence. One such party has been identified and the due diligence process is now underway. As yet, there has been no final decision to sell Globe and neither is there in place any binding commitment on either side to proceed with any transaction at any price." Unlike Carreras, Globe Insurance is not a listed company on the stock exchange; in this case, the directors have a more arduous task of getting fair value for the sale of the company.
On the basis of the above, it is very likely that the sale of Globe Insurance would soon be completed, probably before the Trinidad & Tobago Government releases its control of CL Financial and, by extension, Lascelles de Mercado. Another aspect of Lawrence Duprey's vision was the idea of amalgamating Angostura with LDM's spirits' businesses, mainly the Wray & Nephew companies. If achieved, the combined entity would be a formidable force in the distilled beverages business within the Caribbean. Given the challenges of exporting their products to the USA being faced by Caribbean rum producers, this merger seems to have some merit. In the context of resolving the CL Financial/CLICO problem, the selective asset sales and high dividends by profitable companies such as LDM are an important part of the resolution to the problem. We are all familiar with the fact CL Financial was always a company that had a lot of assets but precious little cash. These dividend payments are particularly helpful to CL Financial and CLICO, both of which, in the not too distant future, will face a significant claim from the Trinidad Government for providing funds to help bail out CLICO and British American EFPA policyholders.