Caribbean Flavours rejects Derrimon takeover offer
The board of Caribbean Flavours & Fragrances Limited (CFF) advised shareholders to reject Derrimon Trading Company's offer to acquire all the ordinary shares in the company, saying the offer price of $4.50 per share is unfair.
In a circular to shareholders posted on the stock exchange, Caribbean Flavours said a special committee of the board considered the offer and relied on the fairness opinion by KPMG Advisory, which concluded "the consideration offered is not fair to the shareholders of Caribbean Flavours and Fragrances Limited from a financial point of view".
On that basis, the committee recommended, and the board unanimously accepted, that Derrimon's offer be rejected.
Contacted by the Financial Gleaner, Caribbean Flavours acting Chairman Clive Nicholas relayed a message to say that he has no comments. Derrimon's Chairman and Chief Executive Officer, Derrick Cotterell, did not return calls for comments.
On January 17, Derrimon offered to acquire 45,841,911 ordinary CFF shares. It included more than 23 million units that the founders of Caribbean Flavours already agreed to sell Derrimon. That deal would give Derrimon majority ownership of Caribbean Flavours and, as required by stock market rules, it prompted a mandatory offer for all other minority shares.
The offer opened on January 20 and closes on February 10. The transactions are meant to be settled at the same time.
Derrimon currently owns 49.02 per cent of Caribbean Flavours, but the deal with founders Anand James and his wife, Dr Joan James, back in August 2016 would increase its stake to 75 per cent.
CFF said that on December 21, 2016, Derrimon announced that it had started a process to acquire the James' shares and that it has prepaid the founders $105.2 million.
Notwithstanding the prepayment, the transaction is not complete as those shares have not yet been transferred to Derrimon, according to Caribbean Flavours' directors' circular, which noted that the company will acquire the James' shares through the takeover bid.
The CFF board advised shareholders that while the offer price is $4.50 per share, the closing price on the Jamaica Stock Exchange on January 16 -
the trading day before announcement of the offer - was $11.95.
The offer is being made with interest payment from December 21 up to but excluding the date of settlement in February.
Derrimon reasoned in its offer document that: "If we had completed the purchase of the Jameses' shares across the stock exchange at the agreed price of $4.50, it would, in our view, have destabilised materially the market in the shares and given a false or misleading appearance with respect to the price of the shares. It could have also meant that we could lose some of the Jameses' shares in the course of the 'crossing' of the shares over the market."
It said acquisition of the Jameses shares would have triggered an obligation to make a mandatory offer for the remaining shares at $4.50 per share.
Consequently, Derrimon said it would not acquire the James' shares before making the takeover bid, but complete the transaction instead as part of the takeover offer.
Derrimon said the real reason for the takeover is to acquire the Jameses' shares in a manner which will not disrupt the market. But it also signalled that it expected its offer to be rejected, given the trading value of the stock.
"As the shares are trading at $11.80, it is not our expectation that other shareholders will tender shares in response to this bid," it said.
Caribbean Flavours was listed on the junior market of the JSE in October 2013. Derrimon also listed on the junior exchange in December 2013.
Junior companies receive 10 years of tax breaks as incentives to list, but as a condition of that benefit, companies must stay listed for at least 15 years. Otherwise, they would be liable to pay all corporate income taxes saved.
If Derrimon's ownership of Caribbean Flavours rises above 80 per cent, that would trigger the flavour company's delisting.
According to the takeover bid, Derrimon has taken steps to ensure that its offer will not result in it owning more than 80 per cent of the shares, and intends to sell down the excess if it surpasses the threshold.
However, Caribbean Flavours says it has not received details of how Derrimon intends to sell down the excess shares and, therefore, is unable to offer an opinion on how successful that process might be.
The directors said CFF could also be delisted under the junior market rules if on completion of the offer, it has less than 25 participating voting shareholders.