Red Stripe boss' pre-deal share purchases under under probe
THE JAMAICA Stock Exchange is probing several share purchases by Red Stripe Jamaica's Managing Director Cedric Blair, who bought up four blocks of Desnoes & Geddes (D&G) shares days ahead of the formal announcement of the company's acquisition by Heineken International.
Desnoes & Geddes Limited trades as Red Stripe Jamaica. Blair has worked with the brewery for more than 20 years and has been its general manager then managing director for the past three.
The transactions were executed between September 29 and October 6, according to market disclosures.
"I have been investing in equities for all my life. When I lived in America, I was investing in D&G stocks and when I came back to Jamaica, I continued ...," Blair said on Thursday, expressing surprise at the news of a probe.
Documents obtained by the Financial Gleaner show that Blair placed an order with his broker, Mayberry Investments Limited, on September 25, 2015, to buy up 150,000 shares on his behalf. He already owned 750,000 units.
Mayberry acquired 28,456 D&G shares on September 29, another 300 units on October 1, and 80,135 units in two transactions on October 6 for Blair. The four trades amounted to 108,891 shares. The stock was then trading at around $6.60 to $7 per share.
Two of the transactions happened a day after Blair was told of a potential deal with Heineken.
Based on the timing of the trades, the chief regulatory officer of the JSE, Wentworth Graham, began to probe the transactions. Graham first wrote to Diageo Plc on October 9 and then October 12 seeking the time lines of the deal with Heineken and the information available to Red Stripe directors.
Diageo received a formal offer from Heineken for Red Stripe on August 7, 2015.
The British company, through its General Counsel Siobhan Moriarty, disclosed that Red Stripe's Chief Financial Officer Bruce Kidner was flown to London to brief Heineken on the performance of the brewery on October 5. However, he was not told of the pending announcement. Instead, Diageo spun it as a "brainstorming" session on the impact of the prospective beer merger of Anheuser-Busch InBev and SAB Miller. Blair says he was locked in a meeting with Bill Bollard, Corporate Relations Director for Diageo, operating out of Miami, that day.
At no time were Blair and Kidner involved in the transaction, Moriarty said.
However, Blair was alerted to the prospective deal.
"Also, later on October 5, 2015, the first director was informed of a possible transaction between Diageo and Heineken, and was likewise informed of the need for utmost confidentiality," Moriarty told Graham.
The 'first director' was subsequently identified as Blair. The general counsel further disclosed that just one Diageo-connected board member of Red Stripe, Jed Dryer, who is a non-executive director and an employee of the drinks company, was told of the "possibility of a transaction" in early August.
Required to resign
The US$421-million deal with Heineken that would raise the Dutch company's stake in Red Stripe to 73.3 per cent required that all Diageo-connected directors resign their seats once the transaction closed. Moriarty said, however, that those directors were only advised to resign on October 7 after the transaction had been disclosed.
It's unclear whether JSE chief regulator Graham reached out to Blair for a statement. He declined to comment.
"It is the policy of the RMOD not to divulge matters pertaining to any investigation or market surveillance activities that it undertakes. It should be noted however that the RMOD investigates trading activities on the JSE to promote and protect market integrity," Graham said.
However, the regulator did reach out to Red Stripe's company secretary in writing on October 14 - and got a response from Chairman Richard Byles.
Byles, who is not a Diageo-connected director, disclosed that Alberto Gavazzi of Diageo called at around 4 p.m. Jamaican time to advise him of the transaction and that the deal would have been announced on October 7 at 7 a.m. London time.
Byles said he immediately called Blair, who responded that he already knew.
"Having received the information, I contacted Mr Blair, managing director, who said he was made aware of it the day before," Byles wrote to the JSE regulator.
The Red Stripe chairman did not specify the date that Blair knew of the deal, but the context implies it was October 5.
Byles also made calls to the non-Diageo directors, whom he said, all appeared to be hearing the news for the first time.
Byles told the Financial Gleaner on Thursday, when reached for comment, that the purchase of shares in the company was something he always promoted.
"I have consistently encouraged directors of Red Stripe to have shares. Based on the results of the company for the past four years it just makes sense. Every director has increased their shareholdings," Byles said.
The Red Stripe chairman said he is very clear that there was nothing untoward in the transaction by Blair. Byles says he has the highest regard for the brewery's managing director, who has shown that he is willing to work hard and maintain his integrity.
"This is a man with an excellent track record as a CEO, a born and bred Jamaican, and really I feel very strongly about defending his integrity," Byles insisted.
A day after Byles' October 14 letter, Graham again wrote to Mayberry - specifically for information on whether Blair had given the broker any instructions beyond the September 25 order.
The broker advised that the Red Stripe director had done so, on October 7, after investment adviser Okelia Parredon had reached out to him for instructions on whether to discontinue his purchase order after the news of Red Stripe's acquisition broke. In response to Parredon's email, Blair confirmed on October 7 and again on October 8 that no more purchases should be made.
Blair insists that he had nothing to gain from purchasing shares at that time.
"... I made no attempt whatsoever to benefit from this transaction. I have no interest in doing so - none!" he told the Financial Gleaner. "Anybody who suggests otherwise, I will have to spend everything I have to clear my name," he said.
Blair was pressed specifically on why he did not tell his broker to suspend his September 25 order in light of the information he had.
"This was the last thing on my mind. The only thing that was on my mind since the announcement was 'what is going to happen to this team and how could I help them'," he responded. "I was in preparation mode," he said.
Heineken plans to buy up the minority shares in Red Stripe for US$0.259 or close to $31 per share. The value of the shares bought by Blair since September 29 was $just under $772,000. They are now worth more than $3 million.
Overall, his Red Stripe holdings are worth around $26 million.
The Financial Services Commission also declined to speak to whether it too is looking into the trades.
"However, the public should rest assured that where applicable, the FSC will take the appropriate action, which may include the application of sanctions, to enforce compliance. Further, where the FSC deems it necessary and appropriate, having regard to all the circumstances, it will make a public statement," the financial regulator said.