Douglas Orane, chairman and chief executive officer of GraceKennedy, says WT Foods acquisition will boost long term shareholder value. - file Lavern Clarke, Business Editor
GraceKennedy's United Kingdom acquisition of WT Holdings Group Limited (WT Foods) was financed by a US$46 million loan arranged by FirstCaribbean Capital Markets and fully underwritten by FirstCaribbean International Bank of Jamaica (FCIBJ).
GraceKennedy paid private equity firm Bridgepoint Capital Limited 23 million for the food company on February 28 to take a 4.6 per cent slice of the United Kingdom ethnic food market, but CEO and Chairman Douglas Orane was shy about the details of the financing, saying only on Wednes-day morning at an investor's briefing that it was a mixture of bank debt and equity from the conglomerate's own resources.
By mid-afternoon, however, FCIB, the Trinidadian parent company for FCIBJ and the FCCM, issued a release announcing the finalisation of the US$46 million (J$3.1 billion; 23 million) transaction with the food group.
The announcement came on the same day that competing bank RBTT's merchant banking arm trumpeted in press ads the big deals it had arranged recently on large projects in the region, one of which was for US$1.8 billion.
"FirstCaribbean is pleased to support GraceKennedy in achieving this landmark acquisition," said FCCM managing director Ian Chinapoo, quoted in the company release. "Our capital markets team continues to pursue diverse transaction opportunities as a market-leading corporate financier and provider of investment banking services."
The details of pricing and payback were not disclosed.
The same FCIB release quoted FCIBJ boss Milton Brady who was at Wednesday's breakfast briefing and would have witnessed Orane's reluctance to give such details.
Brady said the financing was arranged in record time.
Orane himself had made mention of the bank's responsiveness and quick turnaround on the deal.
The GraceKennedy CEO up to press time had not responded to a request for additional comment up to press time. Earlier yesterday he was said to be in a board meeting.
Free of debt
WT Foods, at acquisition was free of debt, according to Orane, who said Bridgepoint had assumed the company's liabilities. GK itself is already carrying $5.75 billion in debt, that last year incurred loan servicing charges of just under $458 million.
Going forward, WT Foods will carry financing charges of some 1.8 million (J$234 million) per annum, CEO Orane told the Financial Gleaner, but refused comment on the number of periods over which the debt would be amortised.
Orane has been touting the upsides of the acquisition, saying that alongside the Grace brands, GK now has the widest range of Caribbean products in the U.K., and that it opens up direct market channels for the Jamaican conglomerate.
GraceKennedy in June will bring its export products under the WT Foods distribution network, eliminating exclusive dealer KTC, "by mutual agreement", he told the Financial Gleaner.
The rechannelling, which Orane says will save GK about 600,000 (J$79.7 million), both allows GK to set its own agenda on when it wants to bring new products to market as well as make adjustments to its range - or as Orane put it greater control of route to market.
He also expects synergies on the manufacturing side of the operations, saying there was potential for some Grace brands to be pushed through the Enco facility at Corwen.
The acquisition also gives GraceKennedy a presence in Asia, through a 5-member office in Hong Kong that handles market exploration and regional buying, and through a 10 per cent stake in Sri Lankan company, Coco Lands Limited, a producer of coconut products with its own factory and organic farms.
GraceKennedy is projecting it will see no real benefit from its new subsidiary in the first year, but anticipates "revenue and profit growth" in year two and periods beyond that.
Orane refused comment on WT Foods outlook for market growth, but assuming that GraceKennedy expects the company to grow inline with the market after year one and that ethnic foods continue to grow at the 8-9 per cent that the GK CEO quoted Wednesday, then the food company should be turning over more than 70 million in three years.
Immediately, the acquisition has boosted group revenues by US$115 million (60 million) or 21 per cent, to US$660 million.
Orane insists WT Foods will perform and deliver on expectations that it will "create long term shareholder value." To ensure its "integration" into the GK group, Orane has pulled together an international team to run the operation, comprising Erwin Burton from Jamaica as WT Foods' CEO, Lucky Lankage from Canada as chief operating officer, Gregory Solomon from the United States, responsible for new business development, and Jerome Miles from Jamaica, in charge of logistics and manufacturing.
lavern.clarke@gleanerjm.com
GraceKennedy Limited (GKL)
Revenues| $36.1 billion |
| Net Profit | $1.87 billion |
| Net Profit Margin | 5.2% |
| Market Price | $58.00 |
| EPS | $5.67 |
| PE Ratio | 10.2 |
| Return on Assets | 2.7% |
