?Now that the Trinidad Cement Limited (TCL) board of directors has recommended to shareholders that the Cemex takeover bid be rejected, I am persuaded the time has come for the board in keeping with its fiduciary responsibility to immediately call a special meeting of shareholders to give further guidance and direction, which would include not parting with their shares until they have the benefit of an independent valuation of the company commissioned by TCL or, failing which, shareholders must demand same.
It is noteworthy the above recommendation is on the basis that the offer fails to reflect the full commercial value of the company and is fully supported by the "fairness of opinion" provided by Ernst and Young Services Limited. In the circumstances, it is simply not good enough for the board to state in their directors' circular that "shareholders who are in doubt as to how to respond to the offer should consult with their investment advisor, stockbroker, attorney-at-law..." The board must, at the risk of repeating myself, commission an independent valuation if it hasn't done so already and on that basis enter into negotiations with Cemex to arrive at a fair price.
That having been said, I wish to sincerely commend the independent directors and in particular Alison Lewis and Nigel Edwards, who signed the circular on behalf of the board, for having the courage of their conviction to rejecting that woefully "unfair" Cemex offer. Interestingly, the circular was not signed by the chairman, Wilfred Espinet who, according to the document, is the holder of over ten million TCL shares. I am not quite sure if this implies that he (personally) is not in favour of rejecting the bid and/or may have recused himself from the meeting at which the decision was made and, if so, does this mean he is free to accept the offer in spite of his board's recommendation. Clearly there's need for clarity on this issue.
The present scenario is very reminiscent of what transpired in 2002, kind of like d�j� vu. Students of the market would recall on the last occasion two bids were eventually made by Cemex to acquire all of the outstanding shares. The first bid for US$0.92 or $5.62 was submitted on January 31, 2002, but was subsequently withdrawn on February 6, 2002, because: (a) Cemex had insisted that preconditions to the purchase were: (a) trading in TCL shares in T&T be suspended during the period of the negotiations and (b) the Board had to sign an exclusive buyout agreement; apparently to shut out any other potential suitors during the period of the negotiations.
At the time, the board found the above conditions were totally unacceptable. The board also found unacceptable the fact that Cemex chose to hold separate discussions with three of the major shareholders in the company, ahead of submitting their offer to the TCL board. The names of the three major shareholders–who were required to sign confidentiality agreements–were not disclosed until recently, in a leaked copy of a document titled "Advice relating to the strength of the cases identified in a report on a preliminary enquiry into suspected illegal insider trading and the submission of the report to the TTSEC."
Cemex was then forced to make a second bid in July 2002. In this regard, several things still stand out for me:
(1) According to the then Cemex offer document, the revised price of $7.15 per share represented an Enterprise Value (EV) multiple of 8.7 times EBITDA for 2001 and a Price to Earnings ratio (P/E) of 19.3 times, which compared favourably to the 5.5 times and 8.1 times P/E averages observed for a comparable group of publicly traded cement companies in Latin American for 2001 to the 6.9 times EV/EBITDA and 13.8 times P/E averages observed for the major global cement companies for the same period. Moreover, the revised offer price represented a significant premium over Cemex's initial offer.
(2) The official position of the then PNM administration was that it would not block the takeover proposal because as it had no basis for intervening to stop the sale and that this was strictly a matter for shareholders to decide in their own best interests. However, the then Barbados government took a different stance by objecting to the sale on the grounds that Barbadians would have lost jobs at TCL's Barbadian subsidiary, Arawak Cement.
(3) Not only did the T&T Government not object to the sale but it opted not to suggest a course of action or give direction to the National Insurance Board, a state agency which owned more than ten per cent of TCL.
(4) The TCL board voted to remove businessman Arthur Lok Jack from the boards of TCL Holdings and its Jamaican subsidiary Caribbean Cement who was at the time a RBTT director and the chairman of Guardian Holdings; and who incidentally was also very open in his support to sell the company at a 40 per cent premium to the then market price.
It's now a matter of record NIB voted in favour of the sale despite a legal challenge by NATUC, led by then OWTU president general Errol McLeod, to block NIB's decision to support the takeover. However, the bid eventually failed at that historic special shareholders meeting held down in Claxton Bay with the company mustering only 67 per cent and not the 75 per cent of the votes required to remove the 20 per cent shareholding cap to facilitate the takeover.
It therefore begs the question, is Cemex willing to run the risk of history repeating itself or will the Mexican cement giant finally make shareholders an offer they simply cannot refuse? In the meantime, I will certainly be holding on to my TCL shares.
Peter Permell
Minority Shareholder Rights Advocate
peter.permell@gmail.com