CMMB Feature: BS&T buyout moving from boardroom to courtroom

By Edgar “Max” Pariagh, Equity Trader

BRIDGETOWN, Barbados, November 1, 2007 – The odds are increasingly likely that the bidding war for Barbados Shipping and Trading (BS&T) will move from the Boardroom to the Courtroom.

Last week, Neal and Massy withdrew their offer (of Bds$8.50) and offered its shareholding (29.1%) of BS&T to ANSA McAl at their Offer price of Bds$10.00 per share. Of course, ANSA promptly withdrew their Offer. The primary reason given by ANSA concerns an alleged bid by BS&T for the “acquisition of a significant business in the Caribbean”.

The notice further stated that ANSA was “unable to confirm the extent of financial obligations intended to be assumed by BS&T”. In ANSA’s release, it was stated that they became “recently aware” of this bid.

This did not seem to be the case upon the release of a shareholder Circular by the Board of BS&T on Sunday. The Board pointed out that information surrounding the possible acquisition was communicated to both suitors in addition to the fact that BS&T “did not intend to undertake any financial obligations…with take-over bids…in existence”. Moreover, the release also stated that both the respective CEO’s of ANSA and NML were informed as well.

The Courts will decide whose version is closer to reality; but this brings up a whole new issue. The issue is that of shareholder confidence. ANSA’s withdrawal, while within the terms of their Offer Document, raises the question of intent. Was the Company bidding for controlling interest in BS&T? Or was the Offer merely an attempt to thwart its rival Neal and Massy?

Either way, going forward, ANSA may be viewed with some measure of caution by investors, particularly on the part of BS&T shareholders. A report carried by the Barbados Nation gave another reason for ANSA’s withdrawal “because of the hostility of the BS&T Board”.

In retrospect, it was unfortunate that shareholders themselves were not given the opportunity to vote by the BS&T Board on which Offer, if any, they were partial toward. Ironically, two Barbadian shareholders of BS&T were granted an injunction preventing such a Meeting from taking place.

The events leading up to and culminating last week-end must certainly leave a bad taste in the mouth for investors in the regional Stock Exchanges. In the initial stages of the attempted take-over, shares of BS&T were trading at Bds$5.35 on the Barbados Stock Exchange; last week, the price was quoted at Bds$8.80. ANSA’s Offer ended at Bds$10.00 per share prior to its withdrawal. So another question of valuation is raised here. If both suitors were willing to pay premiums over the book value for BS&T, what other measures of value were being considered?

The regional investor is faced with this question with the impending take-over of RBTT Financial by Royal Bank of Canada (RBC). Apart from determining whether the TT$40.00 per share is a fair price, shareholders only receive sixty per cent of the cash up front. The balance is to be used to purchase RBC shares upon consummation of the deal some time in mid 2008.

I imagine some investors would not be pleased with the prospect of their money in limbo for six to eight months. Added to this is the continued strength of the Canadian dollar against its US counterpart.

Let us assume that BS&T and RBTT become swallowed up by larger rivals. The Regional Exchanges will have these shares removed from trading, thereby causing significant erosion of market value. It is true that we have a proposal by RBC to have their shares listed similar to Depository Receipts (DR’s), however it is unclear how this arrangement is to work out.

The market will be shrunk in terms of choices for investors as market conditions are not attractive for new company listings and have been so for some time. Can we afford to have companies as valuable as BS&T and RBTT delisted?

The simple answer is no.