Share swap sends securities sector signals

THE STATE bylaws cited by Agostini Ltd in relation to its share-swap takeover bid for Prestige Holdings Ltd – which operates the KFC, Pizza Hut, TGI Fridays, Subway and Starbucks chains – date all the way back to 2005.

That is neither here nor there.

But in a rapidly changing, modern business environment, that the Securities Industry (Take Over) Bylaws are two decades old says something about the pace of legislative reform.

This high-profile transaction will affect at least 3,300 workers employed at 136 locations. And that is just in the target company alone.

The age of the securities framework is one thing, the structure of this transaction is another.

Share swaps are notable because cash does not exchange hands. Instead, shares are traded as payment in kind. Stock is handed over by one party, while a company is handed back.

Key to this process, however, is the "swap ratio" or the number of shares that will be exchanged for each share of the target entity. It requires careful determination of the fair market value of equity.

In this instance, the ratio adopted is 4.8 Prestige shares for one Agostini share.

This is among the matters that could be subject to ventilation at the special Agostini shareholders’ meeting on July 9.

An offer circular from Agostini states Deloitte & Touche implied a ratio range of anywhere between 3.8 to 5.3.

The Ministry of Finance’s approval is required in situations where takeovers of listed companies involve foreign investors.

That is not the case here where everything is close to home. In fact, this is a family affair. Victor E Mouttet Ltd is 100 per cent owned by the Mouttet family (including Christian E Mouttet and Francois N Mouttet) and is the top shareholder of both Agostini (48.5 per cent) and Prestige (52.9 per cent). But says the Agostini circular: "There is no person acting jointly or in concert with the offeror.” Christian E Mouttet reportedly recused himself from discussions and meetings.

Existing already is a connection between Agostini and Prestige, through Agostini’s Acado Ltd. It supplies Prestige with ketchup, mustard, mayonnaise, Pepsi and other drinks, generating about $43.4 million in sales revenue for Agostini.

Cost-saving synergies are being cited by the company as a reason for this in-the-family takeover, but it nonetheless burnishes Agostini’s reputation as a growing business that is preoccupied with acquisitions and amalgamations. More than half a dozen such transactions, touching Jamaica, Guyana, Curacao and Canada, have been disclosed in the last five years.

In a country with a past history of high-profile share scandals involving state assets entering private hands (HMB in 2007; FCB’s IPO in 2014), various social media users have cynically poked fun at the irony of Agostini’s medicine business jostling alongside fast food. But the growing conglomerate’s global ambitions may yet be no laughing matter amid a local diversification thrust.

For the moment, this share swap bid is a means of furthering such ambitions while limiting risk.