Did CLF undervalue Lascelles?

I must admit that Monday's announcement that Government-controlled CL Financial was going to sell its 81.4 per cent stake in Lascelles deMercado, the Jamaican conglomerate, to the Italian spirits company Campari took me by surprise. It is true that CL Financial, under its chairman Gerald Yetming, had signaled that it was looking to sell the Jamaican blue chip company, that manufactures rums, sells general insurance, imports and distributes a variety of good and has a large investment portfolio. But there was all of that unpleasantness last year between the Lascelles board and the company's former managing director of Lascelles, William "Billy" McConnell, who went from leading the company to launching a hostile takeover bid in quick time.

McConnell's bid to acquire Lascelles was pitched at US$3.86 per ordinary share, which is just 12 per cent less than the successful bid made by Campari, according to my arithmetic. I may be missing something here but McConnell got scathed with the mark of Satan for offering US$3.86 per share for a company he knows like the back of his hand, while the Italian company is welcomed as though it represented the Second Coming for offering US$4.32. Now, this story is important—although of the three local newspapers, it was only reported locally by the Guardian on Tuesday—primarily because of the huge amount of taxpayers' money that has been spent in bailing out CL Financial's insurance subsidiary, Clico. When all the accounts are tallied, it is quite likely that the State would have expended upwards of $17 billion on saving Clico and paying off the holders of the insurer's Executive Flexible Premium Annuities, mutual funds and other investments.

This is a not inconsiderable sum, which is equal to about one-third of T&T's annual budget. The most important question in attempting to get to the bottom of the story is did CL Financial—which is controlled by its Government directors as a result of the June 2009 shareholders' agreement and the June 2012 extension until the end of 2012— get a good price for its Jamaican rum assets? It does not seem like an unreasonable price, but the only basis for comparison is the offer made by Billy McConnell in July 2011, which everybody agrees was a fairly cynical low-ball attempt to price loose some of the bondholders. On the issue of the bondholders, please read the intersting and informative piece submitted by Peter Permell, the chairman of the Clico Policyholders Group. But it is worthy of note that the Campari transaction will pay CL Financial US$338 million for the 81.4 per cent that the Trinidad-based conglomerate owned.

The bondholders are owed US$342 million but the core asset of Lascelles, which is its rum holdings, is sold for US$338 million. Something does not compute. What is also worrying is that CL Financial has made no attempt at disclosure in this matter. Campari issued a three-page news release and prepared an impressive, in-depth 20-page power point presentation, which was available in T&T on Monday afternoon. Lascelles issued a four-sentence statement, which said very little, but CL Financial apparently had neither the time nor the inclination to issue a statement. There was no attempt by the CL Financial board to indicate whether the Campari offer was the best of several sub-optimal offers. And there was no attempt to compare the price that was offered for Lascelle's rum assets with other alcohol transactions.

The Campari power point presentation, in particular, indicated that the acquirer had spent considerable time and money studying the global rum market and much more time and money analyzing and getting to know the rum business of Lascelles deMercado. From the presentation can be gleaned the fact that global rum volumes exceeded 137 million 9-litre cases in 2010 with more than ten straight years of positive growth. Lascelles is a company that has good brands in an industry that is in growth mode. But the sale of Lascelles also means that the board of CL Financial—which is chaired by Gerry Yetming, who is also the chairman of Clico, Angostura, Lascelles deMercado and Home Construction Ltd—would have succeeded in monetising one of the jewels in the crown that previously adorned the head of Lawrence Duprey.