To sell or not to sell

Cemex is using an indirect subsidiary, Sierra Trading, in the bid to acquire 132,616,942 ordinary shares of TCL at a price of TT$4.50 apiece. Sierra Trading already owns 39.5 percent of TCL stock and if its latest bid is successful, it will take its ownership up to 74.9 percent.

There is objection aplenty to this latest bid by Cemex – the most strident from TCL’s former chief executive officer, Dr Rollin Bertrand.

In two letters Bertrand recalls that in 2002, Cemex made what he calls a “ridiculous” offer of TT$5.62 or US$0.92 per share for 100 percent of the company’s stock, an offer which was rejected by TCL.

The company then issued a revised bid of TT$7.15 or US$1.17 directly to the shareholders. The company hired American investment bankers JP Morgan to do a valuation of the shares and when JP Morgan returned a determination that the shares were worth TT$10 or US$1.64 each, the TCL board again advised shareholders to reject the bid.

Bertrand feels this is the approach the company should adopt this time around – hire a reputable investment bank to value the company’s shares. However, TCL chairman Wilfred Espinet sees no need to bring in an investment banker, arguing there are many reputable institutions competent enough to conduct a fairness opinion of the valuation done by Cemex, which is the way TCL intends to go.

Espinet said the current TCL board has taken a position that every time it spends the company’s money it must get value for the money spent, and the existing board would not approach the problem in the same way as the previous board.

“They have disqualified themselves as being authorities,” he said. He said the board had an obligation to engage a third party who was unrelated and who the company’s governance committee was satisfied did not have any conflict to do a fairness opinion of the valuation which supported Cemex’s offer.

“We did not say that we were going to do a valuation.”

Espinet said a valuation is something subjective.

“I can give three valuators to value the same property and they could come up with totally different valuations. The process by law is that you must get a fairness opinion and we are doing that. The question is whether having another valuation serves a purpose. I think, personally, that it may create more confusion than is required. The board is going to have a fairness opinion…some third party will look at the offers and then the board must respond to that in its obligation to give a recommendation to its shareholders.”

He added the valuations already put forward and Bertrand’s proposed valuation would show that anybody could have their own ideas about the methodology to be used.

Each one is arguable. He said the solution is for anyone who thinks the company is worth more than Cemex is offering to step forward and buy the company at their proposed price.

“Why doesn’t Bertrand and they put together a team and offer $5?” he asked. “If he thinks it is worth $5 let him offer $5.”

He said the way to determine what something is worth is what someone is prepared to pay for it.

According to Espinet, “The board of TCL is neither a buyer or a seller and it has engaged a third party that is independent and in our minds non-conflicted to come up with a value or to come up with a fairness of the valuation.” He added the four Cemex directors on the board would “naturally” recuse themselves from the decision-making process.

“The governance of this company is a gold standard of governance in this country today. We will never sit on a board and agree that we are going to have Cemex directors make a decision about a Cemex issue. We will ask them to excuse themselves. In fact, they will excuse themselves.” He said the directors did not come onto the board as “Cemex people.”

The board must await the fairness opinion from the experts appointed to do the job, said Espinet, “and when it comes in to us the board will sit in a special committee of directors who are not in any way conflicted.

They will sit and they will come up with recommendations for the board. Then we will sit as a full board - everybody - and make our determination.”

He reminded the public that the number of Cemex representatives are fewer than the non-Cemex directors so they are not in a position to outvote the other directors because it is a Cemex issue.

“And we will take a decision in the interest of TCL and all its stakeholders - and all its stakeholders are not only shareholders because I have employees, financial institutions, I have the public that I sell to and I have the public whose interest I have to represent - the whole public of Trinidad and Tobago.”

In response to a suggestion that once it receives the fairness opinion the board should call a shareholders’ meeting and explain the opinion and seek shareholders’ views, Espinet said the board does have an obligation to inform the shareholders but that is a prescribed process in which the company has to send the shareholders an actual document - the director’s circular containing the directors’ position and an explanation of that position which must be sent 21 days after the offer is made. “So, we are bound by law and by ethics to do that properly.”

But the labour movement is also against the deal: in a brief comment president of the Joint Trade Union Movement (JTUM), Ancel Roget, said JTUM would be opposed to the sale of TCL to Cemex

Vincent Cabrera, president of the Banking, Insurance and General Workers Union (BIGWU), one of the member trade unions of JTUM, was also opposed to any proposed sale. He said the takeover bid was “clearly” another move by foreign capital to monopolise the local market.

He said if Cemex were successful in its takeover bid it could carry out dumping because of its size compared to the local TCL since the local company would not be able to achieve the economies of scale which could be achieved by Cemex.

“It calls into question how we approach strategically the question of national ownership as against foreign ownership which the Government would have little or no control over,” said Cabrera

Then there is shareholder activist, Peter Permell, who said it was clear to him that Cemex’ intention was the takeover of TCL but when the Mexican cement giant made its initial offer in 2002, one of the big obstacles was the 20 percent limitation on share ownership.

He recalled a special shareholders meeting was called to remove the cap but that effort failed for lack of the necessary votes. However, the board of directors later summoned another special shareholders meeting at which shareholders voted to remove the “cap.”

Permell said he never understood why shareholders would vote in favour of such a resolution without understanding all the implications if there was a takeover that was likely to be in the offing.

He said the resolution was passed because the company was in bad shape, shareholders had not received dividends for years, the finances were in a mess and the shareholders were unhappy with the then board of directors.

He said following the removal of the cap, Cemex was able to buy up more than 20 percent of the company’s shares through a rights issue.

For Permell, the issue is whether the price of $4.50 being offered by Cemex was a good offer but he said shareholders would have to wait until the board of directors completed a valuation and give their opinion whether they were for or against the offer or whether they were neutral.

He pointed out that under the Takeover Bye-Laws the directors had 21 days from the date of the offer to submit their valuation and opinion.

Espinet is unfazed by the opposition. Pointing out that TCL was established by an Englishman, he debunked the “narrative” that the company does not have to run properly or profitably only that it remains in local hands.

He said that was not true and at the price of 95 cents per share under the previous board and management, the company would have been “bust” by now.

He said TCL was in a state of technical insolvency when the new board took it over. He said if the directors had not met with the company’s creditors and gone into default, the company would have gone bust.

He said at that point it was necessary to replenish the capital TCL had lost but many companies, even big entities, did not support the Claxton Bay-based operation while Cemex was willing to do so.

ABOUT CEMEX

According to its website, Cemex is a global building materials company with operations in some 50 countries and trade relationships in more than 100 nations, providing what are described as high quality products and reliable ser¬vices. The company has close to 43,000 employees across the world, is one of the leading cement manufacturers in the world and is described as the world’s largest supplier of ready-mix concrete and aggregates. It is also described as one of the globe’s top traders in cement and clinker.

TCL’s former chief executive officer, Dr Rollin Bertrand.