LAST Thursday, Life of Jamaica (LoJ) rejected the $0.10 cents offer made by Life of Jamaica Holdings (LoJH), a company controlled jointly by Life of Barbados and Barbados Mutual, to buy out the remainder of the local insurance giant.
With LoJ shares trading at approximately $2.40, the $0.10 cents offer appears insolent and impudent.
The rules of the Jamaica Stock Exchange (JSE) stipulate that an offer must be made at the very least at the price at which LoJH bought the shares, which was $0.10 cents per share. Therefore, LoJH by all intent and purposes duly complied with the JSE ruling but to the detriment of the remaining 24 per cent minority shareholders who were expecting a fair and reasonable offer. The main purpose of a stock exchange is the protection of minority shareholders. However, it is the view of many of the LoJ's shareholders that the JSE has not protected the over 6,000 minority shareholders in the matter of the offer of $0.10c per share made by the Barbados Mutual subsidiary, LoJ Holdings Limited - formed for the purpose of owning LoJ's shares.
The objective of the rules of the Jamaica Stock Exchange relating to a change in control (i.e. ownership of shares representing more than 50 per cent of the voting rights of a company) is to ensure that minority shareholders not involved in the transaction by which the change of control was effected should have an opportunity to dispose of their shares on no less favourable conditions than those which obtained before and/or at the time control changed.
On November 30, 2001 the Barbados Mutual subsidiary, LoJ Holdings, acquired two classes of shares from the Accountant General - 1,258,683,955 LoJ ordinary shares at $0.10c representing 76 per cent of the ordinary voting shares of LoJ and 1,056,683,670 shares of $1 each of zero coupon non cumulative convertible preference shares with a mandatory conversion to ordinary shares of 10 preference shares to 3 ordinary shares and which on conversion would represent 4 per cent of the total issued ordinary or share capital of LoJ.
At the time the deal was concluded or at latest March 31, 2002, the mandatory condition for conversion was met (i.e. LoJ achieving 100 per cent of minimum continuing capital surplus requirement (MCCSR), which is the new solvency standard introduced pursuant to the Financial Services Act).
The total consideration payable for the preference shares and the ordinary shares was US$41.2 million. Since the conversion of the preference shares into ordinary shares was mandatory, and could reasonably be expected to be met within four months, their proper value would not exceed the proportion of the total purchase price of US$41,200,000 which the LoJ ordinary shares to be produced on conversion would bear to the total LoJ ordinary shares, including those to be produced on conversion, (i.e. 317,005,101 x US$41,200,000 = US$8,288,483 or 1,575,754,056 - 0.37c per share). The correct price to have been paid for the preference shares was US$8,288,483 and not US$38,577,606 as provided in the Agreement for Sale. It can be deemed that the purpose of the manoeuvre by LoJ Holdings to attribute a highly inflated price to the preference shares could only have been designed to deprive the LoJ minority shareholders of receiving a proper offer price.
The proper consideration to have been paid for the LoJ ordinary shares acquired under the Agreement was US$41,200,000 - US$8,288,483 = US$32,911,517 or J$1.28 per share. The price of J$1.28 per share would represent the price at which an offer should have been made at the time of the acquisition by LoJ Holdings or within 30 days thereof.
This would have been the appropriate take-over offer price had the mandatory offer been made at the time of the acquisition or within 30 days thereof as required under the Securities Act.
Some of the minority shareholders have challenged in the courts the failure of LoJ Holdings to make a proper take-over offer and they are convinced that but for this challenge no take over offer would have been made.
LoJ Shareholders should in fact note that the Government of Jamaica effectively sold its LoJ shareholding at $1.28 based on an actual valuation by an actuary, Desmond Sutherland, who at the time was a Director of LoJ. That valuation concluded that $1 billion would be required to be injected into LoJ in order for it to be able to meet the 100 per cent solvency requirement.
Less than seven months later LoJ had achieved 150 per cent of the solvency requirement without any capital being required to be injected. Had the Government sold the shares at a price which did not reflect the need for an additional $1 billion of capital to be injected to meet the new solvency standards, the sale price without any premium for acquisition of a controlling interest would have been in the region of J$1.90 per share.
The JSE must endeavour to ensure that all 6,000 LoJ minority shareholders are offered a fair and proper price for their shares. It is unbelievable that Barbados Mutual could expect any shareholder to accept J$0.10c per share and the question is, was this offer made just to comply with the JSE Rules but with little regard for the making of a fair offer to the LoJ shareholders?
The LoJ shareholders should make the strongest representation either directly or through their brokers or other financial advisers to the Jamaica Stock Exchange protesting against the price of $0.10c set out in the offer and enlisting their support in ensuring that a fair and proper offer price is contained in a fresh offer.
