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Good Fit between BS & T and ANSA McAL

Article Courtesy The Trinidad Guardian

See also Article by Vega Capital Management Ltd- ANSA McAL’s offer superior

The ANSA McAL group is confident that it has constructed an acquisition offer that is superior to Neal & Massy’s for the Barbados Shipping & Trading (BS&T) group of companies, says the ANSA McAL’s chief operating officer, Gerry Brooks.

In an interview on Sunday, Brooks said that the value proposition of the two regional conglomerates working together will be a success story which will lead to the development of strong regional champions based in Barbados.

In a Q&A interview with Guardian editor Anthony Wilson, Brooks said he had no doubt that BS&T shareholders, the people of Barbados and its Government would all benefit from a coming together of the two regional giants.

Q: How long ago did ANSA McAL become interested in BS&T?

A: BS&T had always been of interest to us. As long ago as three, four years ago, our boards in retreat had begun taking a look at BS&T because we felt that there was a good fit between BS&T and ANSA McAL.

Toward the end of June, following the Neal & Massy offer to merge, many shareholders came to us and said that they felt ANSA McAL could add value to BS&T. The shareholders said that they felt that the Neal & Massy offer was thin as there was a substantial $400 million differential between book value and what was being offered by Neal & Massy. In those circumstances, many BS&T shareholders said to us that ANSA McAL had done an excellent job with Bryden and they would like us to consider a possible partnership with BS&T.

Many people, privately and publicly, had been saying that they were not satisfied with the performance of BS&T over the past three to four years and when one compares that with the potential value added by ANSA McAL in Bryden’s, again they felt persuaded that a partnership could add value.

Our board in Trinidad, the parent board, and the parent board in Barbados, considered the exhortations and requests from several of the shareholders and in light of the strategic value we had looked at in 2005 and the potential fit, our boards were persuaded unanimously to go ahead and make an offer for BS&T.

That notice of intention would have appeared on June 23 in the newspapers in Barbados and T&T.

Q: Why do think there is a good fit between BS&T and ANSA McAL?

A: The complementarity of the businesses.

BS&T has some involvement in manufacturing and we have a deep and significant capacity in manufacturing.

BS&T has an involvement in auto. Again, we have tremendous experience in auto in T&T and Barbados and in dealing with many European, North American and Asian car manufacturers.

They have an involvement in the shipping business. We also understand shipping, logistics and procurement very well.

They have an involvement in distribution. We also understand distribution well having representation and strong capacity in T&T and across the region in distribution, both in manufacturing and in handling our own proprietary brands as well as in representing strong third-party brands and principles.

In the true sense of the word, it really is about stakeholder value and we felt that when looked at those businesses, we could bring significant value to the table.

Q: If you go through manufacturing, auto, distribution and shipping, might not the Neal & Massy group also say that there is complementarity?

A: I feel that Neal & Massy group can argue that there is complementarity. But I think that if you look at ANSA McAL in manufacturing, we certainly have a much stronger manufacturing base. Arguably, one might say that in the English-speaking Caribbean, we have the strongest manufacturing base.

More than that, we have demonstrated in the past three to four years that not only do we have a strong manufacturing base, but that we are committed to the sector. We have invested in the sector in terms of capital expenditure in plant and equipment in our beverage business across the region. Across the region and not just in Trinidad.

In our construction business, we have installed two state-of-art cement block plants.

In our chemical business, we have made a significant investment.

In the companies owned by BS&T 100 per cent and in the companies in which they are the majority shareholder, in those cases the installed capacity and the management capability of BS&T, added to our local knowledge combined with regional expertise, could be combined to add significant value.

And that’s simply the manufacturing story.

It is a respectful professional engagement of their professionals, of adding the sourcing of material on the world market in which we could use economies of scale to source more effectively. We could use scale to get better freight rates and better financial terms.

Combining that with better use of common spares and better inventory carrying and use of resources, we felt could add significant value and could convert local businesses in Barbados to regional champions. Regional champions in the sense that we stop looking at Barbados as the market and start looking at the region as the market.

We felt that there were at least two things that we could bring to the table:

1) Operational excellence: which is the first platform for success

2) Regional marketing

I was careful to speak only of companies that are majority-owned by BS&T. Any company which is not majority-owned by BS&T and which is an associate of the group, ANSA McAL does not have the right to direct and our approach would be to make our expertise and capacity available in a way that is mature, professional and respectful.

Our philosophy is not to impose ourselves on a partner. We can’t do and we have never done it. Our philosophy is that if two mature institutions feel that there is value in partnering, we certainly are inclined to work with that organisation to bring value to the table in the interest of Caribbean people. That’s the only way that the CSME can advance.

Q: I am sure that you would be aware that there is quite a lot of anti-T&T sentiment in Barbados. You were speaking earlier of the ANSA McAL experience of acquiring and managing the Bryden asset. Do you think Barbadians have anything to fear with regard to ANSA McAL taking over BS&T?

A: I don’t think that Barbadians have anything to fear with ANSA McAL taking over BS&T.

1. BS&T is 35 per cent-owned outside of Barbados.

2. All of the assets are going to remain in Barbados.

3. Mind and management will remain in Barbados. Our board today in Barbados is populated by some of the best minds there: strong expertise, high-quality experience and respected people of integrity. So that from the leadership perspective, we expect that the leadership at the board level and at the executive level will remain uniquely Barbadian.

We have an executive development programme, right now in Barbados, in which 20 of the brightest and best young executives are being trained to succeed, over time, the existing Barbadian management.

4. It is our intention, where appropriate, to make further investments in plant and equipment in Barbados. The assets will remain in Barbados. They cannot be transported anywhere and they will inure to the benefit of the Barbadian people—that is to say employees, customers, government—all the stakeholders.

5. This transaction means an injection into the Barbados economy of about US$180 million. My understanding and recollection of Barbados’ foreign exchange cover is that it is about US$1 billion which represents about four months cover.

Countries today are looking to increase the quantum of cover and certainly if you have foreign direct investment that can expand your cover from four to approximately six months, that must be welcome from a government perspective because it gives you degrees of freedom and flexibility in economic policy, in foreign exchange policy, in how you develop sectors of the economy and it strengthens the manufacturing base.

The story is well documented about the Barbados National Bank (in which Republic Bank acquired a majority stake from the government) where the quantum of taxes paid in Barbados expanded, shareholder value expanded and the stake that the Barbados government remained with increased.

If you are talking about CSME and one economic space, then you really have to be talking regional powerhouses that have critical mass, critical size and economies of scale to be able to compete with global giants coming out of the north and Europe; many of whom have platforms in South America, North America, Europe and Asia. That is the world we are competing with and we have to be careful that we don’t get marginalised.

When you have a thousand people on the ground in a country, what are you? You really are a very strong entity with strong bases in different territory. That’s what we are trying to build.

Our philosophy derives out of the economic policy of the Government of Barbados. Their national strategic plan to build their financial services platform, their tourism platform and to build other growth poles to ensure diversification of the economy and to ensure sustainable growth in a way that is consistent with the aspirations of their people also informs our strategic plan.

Consequently, this is a tremendous fillip economically, financially, professionally and generally to the people of Barbados.

Q: Is the ANSA McAL offer better than the proposed merger value that Neal & Massy is offering?

A: The ANSA McAL offer is a superior offer. It offers significantly greater value and it is a better value proposition.

What it does is that it starts by offering existing BS&T shareholders a 33 per cent premium on the Neal & Massy offer. Neal & Massy was effectively in the Bds$5.25 range. ANSA McAL is in the Bds$7 range. Neal & Massy’s offer is not a cash offer; ANSA McAL’s is. Neal & Massy is proposing to give them a consideration in Neal & Massy shares. Our offer on a monetised basis of the Neal & Massy share today is 33 per cent better. So hands down, we are saying to clients that you get a 33 per cent premium. More value, more cash.

We are saying to clients that you can take your cash and invest it fixed income instruments, equities of your choice, buy a property or invest in a business. You have degrees of freedom as to how you want it.

What’s more, ANSA McAL is providing BS&T shareholders with an investment election option which allows BS&T shareholders to invest 50 per cent of the proceeds of the ANSA McAL consideration in ANSA McAL shares. So, for example, if you own 1,000 BS&T shares, you would get Bds$7,000 in cash. Alternatively, you may opt to receive Bds$3,500 in cash—50 per cent—and the balance in ANSA McAL shares.

This would mean 225 ANSA McAL shares as the approximate share valuation would be Bds$15.51. This valuation is from the date of the notice where we indicated our intention to provide BS&T shareholders with ANSA McAL shares. There would be Bds$8 left over so that a BS&T shareholder, in this scenario, would receive Bds$3,508 in cash and 225 ANSA McAL shares.

We are also looking at some other investment vehicles to provide BS&T shareholders with additional investment opportunities.

Q: If the ANSA McAL offer, at this point, is 33 per cent better than the value of the Neal & Massy merger proposal and if there is complementarity between the ANSA McAL and the BS&T groups, why wouldn’t BS&T shareholders opt for the ANSA McAL cash offer with the investment election over the inferior Neal & Massy merger proposal?

A: Many shareholders have said to us that they will do just that. Many shareholders have said to us that they are persuaded by the ANSA McAL bid and they like what they see in terms of performance and in terms of ANSA McAL’s creation of shareholder value. And they like what they now hear about ANSA McAL’s Vision 2010 which, as agreed to in 2006, involved a commitment to doubling shareholder value and the group’s share price by 2010.

Earlier, in 2003, we said that by 2006 we would double shareholder value and double the earnings per share and that the share price as a result would double. By 2005, that promise had been fulfilled.

Our share price had more than doubled as had our profit growth—it’s a matter of record—and our share in the context of all of the exchanges had stood up extremely well.

It is not by accident that Ernst & Young voted us the top regional conglomerate in 2003. It is not be accident that ANSA McAL Barbados was the best-performing share in 2006 on the Barbados Stock Exchange. And, in terms of volatility, the share has demonstrated very little volatility and has been extremely robust when you look at how some of the other shares across the region have given back value.

Many shareholders have said to us that they feel that on or before August 21 at 5 pm, when the BS&T shareholders are required to make the election, that ANSA McAL can count on their support.

ANSA McAL is not taking things lightly. We are continuing to engage the shareholders in a way that is honest, professional and open.

We are not allowing ourselves to be distracted by noise in the marketplace because at the end of the day, it is about giving the shareholder a value proposition and giving them access to a share that can grow.

Our Vision 2010 statement is a matter of record. We did not come up with it for the BS&T transaction. We are on track to deliver Vision 2010. Already for our 2007 first quarter, we are 30 per cent ahead of the same period in 2006 in terms of profitability. A company and a group cannot be generating sustained, good and positive results by accident.

We are very heartened and persuaded by the response that we have received from many BS&T shareholders and we are looking forward to working with them. We regard them as a significant partner and it is our intention, once given the opportunity and privilege, to add significant value to BS&T.

Q: Do you think Neal & Massy undervalued BS&T in terms of making their merger offer?

A: I will not comment on what Neal & Massy did. I will comment on what we do. We say that the Bds$7 offer is a much fairer offer and far more consistent with the value of BS&T today. We anticipate that we will have to make some inputs and injections and we feel that that platform will offer shareholders a greater value proposition.

Now what is a little bit curious is the way the BS&T board have responded. We have said to the BS&T board, in our letter to them, that ANSA McAL is prepared to engage the BS&T board and share our plans with them. No response. Not even an acknowledgement. An independent board of directors, charged with a fiduciary responsibility to all of its shareholders, not favouring any one, has a responsibility in law, statutorily and morally to engage the organisation which is making such an offer. It is a serious offer. We have demonstrated the financial wherewithal to do it. We have made known our intentions and we have not had even an acknowledgement of our offer.

In the view of many shareholders, a board in those circumstances must and should engage.



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