Fe­lix Pereira

Us­ing the re­sources of var­i­ous sub­sidiaries and as­sum­ing a huge amount of debt, the CL Fi­nan­cial Group even­tu­al­ly ac­quired more than 86% of the share­hold­ing of Las­celles de Mer­ca­do (LDM) in 2008. The av­er­age price that was paid for the com­pa­ny was more than twice its stock mar­ket val­ue at the time. It was prob­a­bly one of Mr. Lawrence Duprey's ex­pec­ta­tions that as­set sales, such as Car­reras, would help re­pay the debt as­sumed. In ad­di­tion, it was an­tic­i­pat­ed that LDM would or­ches­trate a merg­er of its Wray & Nephew sub­sidiary with An­gos­tu­ra Hold­ings Lim­it­ed. Up to and in­clud­ing 24th May 2012, Las­celles de Mer­ca­do owned 74,263,144 shares in Car­reras Lim­it­ed, which is a sub­sidiary of BAT In­dus­tries Lim­it­ed, which is the same com­pa­ny that con­trols WIT­CO. Both Car­reras and WIT­CO are in the to­bac­co busi­ness.

he share own­er­ship by LDM in Car­reras rep­re­sent­ed 15.3% of the to­tal out­stand­ing shares of 485,440,000. An in­vestor sit­ting on such a sig­nif­i­cant hold­ing would en­sure that every ef­fort would be made to dis­pose of this as­set at the best pos­si­ble price. The ma­jor­i­ty shares (86%+) of LDM are owned by com­pa­nies that are sub­sidiaries of CL Fi­nan­cial Lim­it­ed, which at least un­til 31st De­cem­ber 2012, is un­der the con­trol and di­rec­tion of the Gov­ern­ment of Trinidad & To­ba­go. In the sev­er­al months pri­or to 24th May 2012, Car­reras Lim­it­ed gen­er­al­ly trad­ed at prices above J$60.00. On 21st May 2012, 15,062 shares changed hands at J$60.02. Then, sud­den­ly, on 25th May 2012, 66,129,422 shares trad­ed at J$50.00. This was fol­lowed on 28th May 2012, by trades of 1,195,841 shares at the same price of J$50.00. Next, on 30th May 2012, 3,775,473 shares moved at J$50.00. The last sig­nif­i­cant trade was 4,252,210 shares on 31st May 2012, leav­ing the clos­ing price at J$50.02. The to­tal of these trades over these four trad­ing days was 75,352,946. It was safe to as­sume that the largest sell­er of Car­reras's shares was LDM. Sub­se­quent­ly, this was con­firmed when LDM re­leased its in­ter­im re­sults for the nine-month pe­ri­od end­ed June 2012. In the nar­ra­tive ac­com­pa­ny­ing this re­port, the fol­low­ing state­ment is record­ed: "The net prof­it ma­te­ri­al­ly in­creased with the gen­er­a­tion of oth­er in­come to­talling J$4,070m.

This pri­mar­i­ly rep­re­sents gains on the sale of eq­ui­ties and re­flects the con­tin­u­ing ex­e­cu­tion of our strat­e­gy to re­lease cap­i­tal from non core ac­tiv­i­ties and in­vest­ments." The re­port to LDM share­hold­ers made no spe­cif­ic men­tion that the com­pa­ny's shares in Car­reras were sold in May 2012. More­over, in the con­text of a re­cent mar­ket price of J$57.00 and prices above J$60.00 for the past year or so, the at­tained sell­ing price of J$50.00 was not ex­plained. In all like­li­hood, the sheer size of the trans­ac­tions meant that buy­ers for the 74 mil­lion-plus shares would have had to be pre-arranged be­fore the shares were placed on the ex­change. If such a large vol­ume of shares were sud­den­ly put on the mar­ket, the price would have most like­ly fall­en sharply; in that case, the re­alised price could have been sig­nif­i­cant­ly low­er. These ex­tra­or­di­nary re­sults re­flect­ed half-year earn­ings per share of J$60.43. On that ba­sis, LDM de­cid­ed to de­clare a spe­cial div­i­dend of J$31.25, which would be paid on 31st Au­gust 2012. The four main ben­e­fi­cia­ries to this pay­out are all CL Fi­nan­cial sub­sidiaries. Us­ing an ex­change rate of J$13.7 to TT$1.00, the div­i­dends to the var­i­ous com­pa­nies are shown in the ta­ble.

Com­pa­ny

Num­ber of­shares in LDM

Div­i­dend in J$

Div­i­dend in TT$

CL Spir­it­sLim­it­ed

68,620,190

J$2,144,380,938

TT$156,524,156.

Calla Lil­ly­Hold­ings

9,515,980

J$297,374,375

TT$21,706,159.

An­gos­tu­raLim­it­ed

9,515,980

J$88,908,563

TT$6,489,676.

Colo­nial LifeIn­sur­ance

(Trinidad) Ltd

2,494,310

J$77,947,188.

TT$5,689,576.

If we look back at the last two years or so, LDM has paid out high div­i­dends, even as its share price has de­clined. For 2011, Las­celles paid a to­tal div­i­dend of J$42.20. In May 2012, ama div­i­dend of J$9.00 was paid. On 24th Au­gust 2011, the share price was J$318.00 and it closed on 13th Au­gust 2012 at J$241.08. As a di­rect re­sult of this sig­nif­i­cant share sale, LDM's in­vest­ment as­sets de­clined from J$8.25 bil­lion as at Sep­tem­ber 2011 to J$2.49 bil­lion as at the end of June 2012. How­ev­er, to­tal as­sets in­creased mar­gin­al­ly, or from J$36.9 bil­lion last Sep­tem­ber to J$37.1 bil­lion in June 2012. Not un­ex­pect­ed­ly, cash re­sources im­proved dra­mat­i­cal­ly from last Sep­tem­ber's J$5.65 bil­lion to this June's J$10.22 bil­lion. Aside from pay­ing out huge div­i­dends, the com­pa­ny has to al­lo­cate these new funds to gen­er­ate some re­turns to share­hold­ers. Let us take a look at the dis­tri­b­u­tion of rev­enue and prof­it from the group's var­i­ous busi­ness lines for the first three quar­ters end­ing in June 2012. As pre­vi­ous­ly not­ed, the star per­former was the in­vest­ments di­vi­sion, which saw its pre-tax prof­its in­crease from less than J$400 mil­lion in 2011 to a very ro­bust J$3,923 mil­lion. Dis­tilled spir­its and sug­ar al­so con­tributed a com­mend­able J$1.9 bil­lion up from last pe­ri­od's J$1.4 bil­lion.

The gen­er­al in­sur­ance di­vi­sion's ex­pand­ed from J$357 mil­lion to a very re­spectable J$620 mil­lion. A big dis­ap­point­ment was the loss in­curred by the trans­porta­tion ser­vices units; from a prof­it of J$59 mil­lion, we saw this unit's con­tri­bu­tion de­cline to a loss of J$104 mil­lion. Al­so ex­pe­ri­enc­ing chal­leng­ing re­sults was the gen­er­al mer­chan­dise di­vi­sion; in this case, the prof­it con­tri­bu­tion con­tract­ed to J$99 mil­lion down from last pe­ri­od's J$300 mil­lion. One ex­pects that cor­rec­tive mea­sures are al­ready in place to help re­store the re­sults from these two units. An­oth­er ma­jor as­set that is soon ex­pect­ed to be sold is Las­celles' in­vest­ment in Globe In­sur­ance Com­pa­ny of Ja­maica Lim­it­ed. On 30th May 2012, LDM re­leased a state­ment that con­firmed that sev­er­al com­pa­nies had ex­pressed an in­ter­est in ne­go­ti­at­ing for the pur­chase of Globe. The re­lease went on "The Board of Las­celles, de Mer­ca­do & Co. Ltd. in­struct­ed its ad­vi­sors to iden­ti­fy and of those in­ter­est­ed par­ties as a pre­ferred par­ty and al­low them the op­por­tu­ni­ty to un­der­take full due dili­gence. One such par­ty has been iden­ti­fied and the due dili­gence process is now un­der­way. As yet, there has been no fi­nal de­ci­sion to sell Globe and nei­ther is there in place any bind­ing com­mit­ment on ei­ther side to pro­ceed with any trans­ac­tion at any price." Un­like Car­reras, Globe In­sur­ance is not a list­ed com­pa­ny on the stock ex­change; in this case, the di­rec­tors have a more ar­du­ous task of get­ting fair val­ue for the sale of the com­pa­ny.

On the ba­sis of the above, it is very like­ly that the sale of Globe In­sur­ance would soon be com­plet­ed, prob­a­bly be­fore the Trinidad & To­ba­go Gov­ern­ment re­leas­es its con­trol of CL Fi­nan­cial and, by ex­ten­sion, Las­celles de Mer­ca­do. An­oth­er as­pect of Lawrence Duprey's vi­sion was the idea of amal­ga­mat­ing An­gos­tu­ra with LDM's spir­its' busi­ness­es, main­ly the Wray & Nephew com­pa­nies. If achieved, the com­bined en­ti­ty would be a for­mi­da­ble force in the dis­tilled bev­er­ages busi­ness with­in the Caribbean. Giv­en the chal­lenges of ex­port­ing their prod­ucts to the USA be­ing faced by Caribbean rum pro­duc­ers, this merg­er seems to have some mer­it. In the con­text of re­solv­ing the CL Fi­nan­cial/CLI­CO prob­lem, the se­lec­tive as­set sales and high div­i­dends by prof­itable com­pa­nies such as LDM are an im­por­tant part of the res­o­lu­tion to the prob­lem. We are all fa­mil­iar with the fact CL Fi­nan­cial was al­ways a com­pa­ny that had a lot of as­sets but pre­cious lit­tle cash. These div­i­dend pay­ments are par­tic­u­lar­ly help­ful to CL Fi­nan­cial and CLI­CO, both of which, in the not too dis­tant fu­ture, will face a sig­nif­i­cant claim from the Trinidad Gov­ern­ment for pro­vid­ing funds to help bail out CLI­CO and British Amer­i­can EF­PA pol­i­cy­hold­ers.