Why was $36.79 per share paid for shares in Barbados Banks DIH when the publicly quoted price is $22.5 per share?

Banks DIH Limited has just disclosed that the 2005 Memorandum of Understanding for a mutual share investment agreement between itself and Banks Holdings Limited of Barbados has now been substantially reversed. Almost every year since 2005, the Chairman and directors of Banks DIH have touted the virtues of the agreement, the synergies from the relationship, and benefits in export sales to both companies.

Keen observers also noted enhanced procurement and governance practices with the presence of nominees of the Barbados company having a place on the Board of Banks DIH.

So it was with some surprise that the public learnt, even before the shareholders did, that in 2015 Banks DIH had sold its shares in the Barbados company. With no reason offered for walking away from the greatest opportunity to expand the export market for Banks DIH products, speculation circulated about the true motive of the Banks management.

At the time, a Brazilian company, through its St Lucian subsidiary SLU Beverages Ltd, and Ansa McAl of Trinidad and Tobago were engaged in a battle to gain control of Banks Holdings Ltd of Barbados.

A couple of days ago, in what was described as an Amended Press Release, the Executive Management of Banks DIH announced that it had repurchased 150,138,464 of its shares owned by the Barbados company. It was disclosed that the price of $36.79 per share was based on a valuation conducted by PriceWaterhouseCoopers (PWC) in December 2015.

The full page ad volunteered that throughout the “whole process” the management was guided by the company’s financial and legal advisors.

Under normal circumstances when logic and common sense are evident, my questions and comments would first have been about the failure of the Clifford Reis-led management and board to have alerted its shareholders to a number of matters.

First, why are shareholders only now learning of the proposed buyback since it was in process since December 2015; second, how can any adviser worth their fees overlook the foundational principle of company law that a change of shareholders does not have any impact on the rights and obligations of the company, in this case whether it be Banks Guyana or Banks Barbados; and third, why did the directors and management not think it helpful and necessary to advise shareholders that the money the company will be paying out on this share buyback transaction is $5,523 million.

But since the transaction defies both logic and common sense, my questions to the geniuses of Thirst Park are:

1. Why pay $36.79 per share to the Bajans for shares in Banks DIH Limited whose publicly quoted price is $22.5 per share, a premium of 64% and worth in dollar terms $2,145,478,650?

2. How do they justify handing a gain of $3.6 billion to the Bajans when the gain a year ago in the sale of shares in Banks Barbados was $1,147 million?

3. Are they aware that the $5,523 million they will pay out for these shares is more than two years of the company’s 2015 after-tax profit, more than 2.3 times the value of its share capital and about 90% of its revaluation reserves?

4. Can they indicate whether they propose to finance the transaction with borrowings? At September 30, 2015 the company’s cash reserves stood at $4,060 million, current liabilities of $4,155 million, borrowings of $585 million, and current year (2016) capital commitment of $4,607 million.

5. The currency of the selling price quoted in the Amended Press Release was Guyana dollars. Translated in US dollars, the total proceeds amounted to approximately US$26.3 million. Would the company disclose whether it paid Guyana, Barbadian or US currency?

6. Would they be willing to buy back shares held by other shareholders at the same price they paid the Barbados company? In fact, they should be willing to pay a price in excess of the $36.79 since the deal with the Barbados company had marketing and other benefits.

I am sure that all shareholders have a right to these questions being answered promptly.

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