By McPherse Thompson, Assistant Financial News EditorINDEPENDENT DIRECTORS of FirstCaribbean International Bank (Jamaica) have recommended that minority shareholders accept an offer to swap their equities stake in the local bank for shares in the regional holding company, FirstCaribbean International Bank.
In fact, the directors said the exchange of 7.5 FirstCaribbean shares for each ordinary share in FirstCaribbean Jamaica is being offered at a premium of about 15 per cent, based on the companies' current trading prices on the Jamaica Stock Exchange (JSE). FirstCaribbean's share is now trading in the region of $73.40, compared with FirstCaribbean Jamaica's price of around $8.52. The swap offer will continue until May 9 unless the bank extends the deadline.
The holding company, FirstCaribbean, which arose out of the merger of Barclays Bank's Caribbean operations and CIBC West Indies Holdings, announced on March 31 that it was seeking to acquire the outstanding public ownership in the Jamaican operation.
SHARE EXCHANGE
According to Raymond Campbell, country manager for the Jamaican operations, three of the bank's independent directors Albert Webb, Peter McConnell and Anthony Bell have since reviewed the offer and recommended that the shareholders accept the share exchange.
Mr. McConnell, one of the larger of the minority shareholders in the local bank, told shareholders attending Wednesday's annual general meeting of FirstCaribbean Jamaica at the Courtleigh Hotel in New Kingston that the equities swap was a "fair offer" and that their investment in the wider Caribbean operation would be more secure.
The 7.5:1 exchange met little resistance as only one shareholder at the meeting felt it would have been more attractive if the regional bank made it a 5:1 ratio. "I am not against the merger," said the shareholder.
However, he urged the directors to reconsider the offer, in view of his hunch that companies would now be reluctant to issue bonus shares since they would lose the tax credit they got when they issue those shares. The removal of the tax credit for companies that issue bonus shares was part of the measures outlined by Finance and Planning Minister Dr. Omar Davies last week to close a gap in the budget.
'TOO HIGH A PREMIUM'
Mr. Campbell said a 5:1 share swap would result in too high a premium about 60 per cent to shareholders and reiterated that the 7.5:1 ratio had been reviewed and accepted by three independent directors and their advisors.
In a presentation detailing why the independent directors have accepted the share exchange, Mr. Campbell said investors would have a more diversified revenue and return base from owning shares in FirstCaribbean, which operates in 15 countries.
In addition, FirstCaribbean is a strongly capitalised, highly liquid bank, with the largest market capitalisation of any such institution in the English-speaking Caribbean, he said.
The holding company must get at least 90 per cent of the 34.35 million shares in the Jamaican bank from at least 75 per cent of the shareholders to carry forward its plans. The 34.35 million FirstCaribbean Jamaica shares are being exchanged for about 4.6 million FirstCaribbean shares.
FirstCaribbean Jamaica shareholders wishing to participate in the offer must tender their shares by filling out a form of acceptance and transfer. The Jamaican bank shareholders will then be issued with FirstCaribbean shares, which will continue to trade on all three regional exchanges.
Since FirstCaribbean intends to make the Jamaican bank a 100 per cent subsidiary, it would compulsorily acquire any shares not tendered under the offer and delist FirstCaribbean Jamaica from the Jamaica Stock Exchange (JSE).
'STATUS QUO WILL REMAIN'
FirstCaribbean Bank's chairman Michael Mansoor, in response to a question from a shareholder, said that if the 90 per cent and 75 per cent thresholds for the share swap were not met the status quo would remain.
However, in a final appeal to the group of shareholders, Mr. Campbell said the directors "believe that the exchange of FirstCaribbean Jamaica shares for FirstCaribbean shares is in the long-term interest of both FirstCaribbean Jamaica and FirstCaribbean."
Earlier, Mr. Campbell provided data to show that the merger would be beneficial to shareholders. At the end of January, he said, the Jamaican bank had $18.3 billion on its balance sheet, compared with the regional bank's $459.7 billion. Last year, the local bank earned net income of $238 million, compared with the regional bank's $5.5
billion.
For the first quarter this year, FirstCaribbean Jamaica earned $66 million in net income, as against FirstCaribbean, which earned $1.3 billion during the same period. FirstCaribbean Jamaica's capital base was $1.2 billion as at October 31, 2002, compared with FirstCaribbean, which had $37.7 billion.
Standard & Poor's has rated FirstCaribbean as "A- stable" based on its regional infrastructure, stable diversification and strong market share in the Caribbean, the track record of its predecessor institutions, as well as its solid financial condition and financial flexibility.
GREATER PUBLIC OWNERSHIP
Shareholders will also benefit from the exchange of shares because there will be greater public ownership in the Caribbean over time, Mr. Campbell said. FirstCaribbean intends to increase public ownership from 12.5 per cent to 20 per cent over time. Mr. Mansoor also said the exchange would help to improve the liquidity of FirstCaribbean's shares.
The regional bank is also looking to list on the Eastern Caribbean Stock Exchange, and discussions are underway with a view to listing on the Cayman Stock Exchange.
Some 3,500 employees of FirstCaribbean will also benefit from a gift plan of about six million shares in the bank - a process that Mr. Mansoor said should be in place by October, this year.
The synergies that are expected from the local operation becoming a subsidiary will include rationalising of the head office functions, information technology infrastructure and other operational processes.
