As a business journalist, it is important that due notice be paid to important business stories that are happening in other parts of the Caribbean, especially if those stories involve T&T companies.
One of the stories to which close attention is being paid is the takeover battle that is being waged by ANSA McAL against Brazilian beer giant AmBev, for control of Banks Holdings, a company in Barbados that produces beer, milk drinks and fruit juices under the Pinehill brand. The company is also the holder of the Barbados franchise for Coca-Cola and bottles its own brand of carbonated beverages.
This story developed in two significant ways last week. In the first development, both bidders increased the prices they said they were prepared to pay for the Barbadian company:
1 On Tuesday, according to Barbados media reports, SLU Beverages Ltd, the AmBev subsidiary that is bidding for Banks Holdings, raised its share offer to US$3.10.
SLU Beverages, which is owned by the largest beer company in the world, Brazil's AmBev, had initially offered US$2.00 per share, before increasing its price per share to US$2.60 and most recently to US$3.10.
On Friday, T&T conglomerate ANSA McAL made a counter-offer of US$3.50 a share for Banks Holdings, topping Tuesday's amended offer by AmBev, which was made three days earlier.
Now, it seems to me that if the directors of Banks Holdings were seeking the interests of the company's shareholders–as they are duty bound to do–they would be interested in getting the best price and the best terms for their shareholders.
It is interesting that a special committee of independent directors of the Banks board issued a circular on Friday recommending that the company's shareholders not accept an earlier US$3 offer by ANSA McAL.
This was based on the fact that AmBev, at the time of the writing of the report on Thursday, was offering a better price than ANSA McAL and they seemed to have determined that AmBev would be a better fit for Banks than ANSA McAL.
One of the points the Banks directors feel is in AmBev's favour is that the Brazilian company would facilitate export of Banks beer from Barbados to the Caribbean.
This is what they say: "Given the generally-observed situation whereby national beers in small markets are preferred in the minds of people of the country, in our view it is unlikely that either bidder will seek to replace Banks and Deputy beers locally. The obvious opportunity for the Banks brewery is the manufacture of brands for export.
"This is particularly opportunistic for AmBev given that apart from the OECS islands, AmBev's brands do not account for any meaningful market share in the region."
The Banks committee is also convinced that AmBev can produce its brands including Presidente from the Dominican Republic and international brands such as Budweiser, Stella Artois, Becks and Corona "in an expanded configuration of BHL's brewery."
But how realistic is it that AmBev would want to make Barbados–with its high cost of labour and electricity–the centre of its production in this part of the region?
How realistic is it that AmBev would want to export Banks to the Eastern Caribbean, rather than sending its own brands to the entire region from its factories in the Dominican Republic?
Also a news website called Imbibe did an interesting story last week on the acquisition of SABMiller by AB InBev, the parent of AmBev.
According to the story: "The huge price paid by AB InBev for SABMiller–and the small proportion of physical assets–is almost certain to lead to consolidation and job cuts, according to a leading brand valuation and strategy firm.
"The US$107 billion deal, which was finalised last week, has left AB InBev with a combined workforce of 225,000 employees.
"It has also left it with a high proportion of intangible assets to tangible assets and, according to the City-based consultancy Brand Finance, will require 'huge post-extraction synergies'–or job-cuts and mergers in layman's speak–to justify the price paid.
The final purchase price values the new company at US$120 billion. Of this, just US$13 billion is in tangible assets, such as plant and machinery, with a further US$32 billion worth of 'brands' and US$4 billion of software.
The remaining US$71 billion of the valuation price–59 per cent of the total–is described as "residual goodwill."
It would be interesting to find out from AB InBev just how many of the 509 Banks employees they intend to retain?
On the other hand, ANSA McAL said last week: "We believe that ANSA McAL is better for Barbados, better for Banks, given the synergies with our beverage portfolio and our plans to grow the brand.
"Once we acquire BHL, the Banks Beer brand will be the among top three brands in our brewery portfolio and remain our flagship brand in Barbados.
"If AmBev acquires BHL, the Banks brand will be one among countless big international brands."
2 Chartered accountant Douglas Skeete told Barbados TODAY that the "poison pill" clause "committed the company to paying US$66.25 million for 13,250,000 shares to SLU if any shareholder were to acquire more than 25 per cent of the Banks Holdings shares."
SLU, an entity called the Latin Capital Fund (LCF) and Banks Holdings signed a loan agreement in June 2010, through which US$28 million was lent to the beverage company to build a new brewery.
The agreement allowed SLU and LCF to convert the US$28 million debt into shares in Banks Holdings at US$2 a share. According to a Banks' directors circular distributed on Friday, the loan agreement provides the following:
If any person or group becomes the direct or indirect ultimate owner of BHL shares representing more than 25 per cent of the total voting power of the BHL shares, then:
n SLU may elect to require BHL to convert the remaining Notes (as defined above) at a cash price of US$2.00 per ordinary share;
n SLU may elect to require BHL to purchase any Notes at the price of 2.5 times the outstanding principal amount thereof, plus accrued and unpaid interest. This effectively means that SLU can require the outstanding debt to SLU of US$1.5 million to be repaid to SLU at 2.5 times the value of the debt; or
n SLU may elect to require BHL to purchase any BHL shares which were issued upon conversion of any promissory notes. The purchase price BHL shall pay, shall be an amount equal to 2.5 times the principal amount of the notes converted to obtain such BHL shares, plus accrued and unpaid dividends.
Some 13,250,000 common BHL shares (representing a 20 per cent stake in Banks were issued to SLU by BHL almost immediately CDPA.
Therefore SLU has the ability to require Banks Holdings to re-purchase the 13,250,000 common shares at US$5 a share, which shares were issued to SLU on conversion of the debt in 2010.
In effect, this clause means that if ANSA McAL–or any company–is successful in acquiring 25 per cent of Banks Holdings, the Barbados company has to pay SLU, now AmBev US$5 a share for its shares.
The clause is called a poison pill because the payment of US$66.25 million could severly damage Banks.
It is alleged that the directors of Banks Holdings agreed to the inclusion of the poison pill in the loan agreement, but never told the shareholders of the company about its existence.
So, the questions are: Is it true that the Banks directors agreed to this poison pill and is it true that they did not inform all of the owners of the company?