The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Leading institutional investors and brokers have backed plans to implement a Takeover Code as “absolutely essential” to orderly Bahamian capital markets, its absence having led to situations where minority investors were “clearly abused”.

The consultation period on the Securities Commission’s draft Takeover Code ended at the start of this month, and top players have told Tribune Business that its implementation was “long overdue”.

“I think it’s absolutely essential, particularly as you deepen your capital markets and business sector,” Larry Gibson, vice-president of pensions at Colonial Pensions Services (Bahamas), said in a recent interview.

“As we develop that, we move far away from where we had a bunch of private companies to public companies.

“It’s [a Takeover Code] absolutely essential. What was happening here was a lot of cases where minority shareholders were clearly abused.”

All developed, and many developing, jurisdictions have long-standing Takeover Codes that set down rules and regulations to govern acquisitions, or mergers, involving publicly listed companies.

They are designed primarily to maintain an orderly capital market and protect the interests of minority investors when a controlling stake in the company they own is sold to a third party.

The Bahamas, though, has to-date never had a Takeover Code or rules resembling one, creating a significant hole in its capital markets regulatory armoury.

Numerous mergers and acquisitions have taken place involving listed Bahamian companies over the past 12 years. There was the CIBC/Barclays merger to create CIBC FirstCaribbean, plus Colina Insurance’s acquisition of a majority 51 per cent stake in the then-Global Bahamas.

Grand Bahama Power Company, which is 50 per cent owned by BISX-listed ICD Utilities, has seen majority control change several times. Mirant, the original owner, was acquired by the Marubeni/Taqa consortium, while Lady Henrietta St George also sold her 50 per cent ICD Utilities stake to Emera.

Emera subsequently acquired just over 80 per cent majority control when it bought out Marubeni/Taqa in late 2010/early 2011.

Most Takeover Codes protect minority investors by requiring the purchasing entity to make an offer to buy 100 per cent of a firm’s outstanding shares once it has acquired a certain threshold - in the UK, 30 per cent.

Colina Insurance Company did this after acquiring a majority stake in RND Holdings (now Colina Real Estate Fund) from education minister Jerome Fitzgerald, but this has proven an exception

With this rule absent in the Bahamas, minority investors have been forced to meekly accept ownership changes, locked into companies where the management, focus and corporate objectives may have drastically changed.

The most egregious example came with the 2006 acquisition of a 78 per cent majority stake in Bahamas Supermarkets by the BSL Holdings private equity group.

While not listed, Bahamas Supermarkets was still a public company, and its net losses climbed into the eight figures annually post-acquisition, the 22 per cent Bahamian minority investors saw their investment wiped out.

“There are typically provisions in these Takeover Codes for the protection of minority shareholders, and if you look at what we’re doing, it’s more driven by the need to protect minority interests,” Mr Gibson told Tribune Business.

He indicated that with many BISX-listed, and other, public companies controlled by one majority owner or a group of like-minded shareholders, minority investor safeguards were critical in the Bahamas.

“It’ll certainly close the gate,” Mr Gibson added of a Takeover Code. “The horses that have bolted have already gone, but at least going forward somebody will have the power to do something.

“It’s another necessary step in the journey that we have to embark upon. To the extent that we’re now replaying it, it’s a good and positive thing long-term, but like everything else it should have been done a long time ago.”

Mr Gibson’s assessment was backed by Kenwood Kerr, Providence Advisors’ chief executive, who agreed that the Bahamian capital markets may have “fallen down” in the past when it came to minority investor protection.

“But there was nothing specific relating to minority interests” in law or regulation, he said, adding that while some “may have thought they were doing the right thing in their own mind or by law”, those investors had not been protected.

“It’s an essential piece of the market’s general operations, and something investors can have as part of the means of protecting their interests,” Mr Kerr said.

“We always could look back in hindsight and say this should have been done 20 years ago, as a lot of companies have been taken over.

“The question is enforcement, like everything else. That’s critical. That’s probably one of the elements they’re looking at as well.”

The Securities Commission itself acknowledged the weaknesses and problems that had been caused by the absence of a Takeover Code, noting that the frequency of public company mergers and acquisitions had resulted in “greater concern”.

Noting that itself, and the Government, had failed to build on the foundation provided by the Securities Industry Act, the regulator said: “The Securities Industry Act 1999 anticipated and provided for the development of rules to govern takeovers, mergers and other similar transactions, but for a variety of reasons these rules were never developed.

“In the initial stages of development of the Bahamian markets, the absence of these rules did not present a major obstacle. However, as a number of corporate actions occurred, such as the merger of CIBC and Barclays Bank, the lack of rules to guide these types of corporate actions became a source of greater concern, particularly as the governing Companies Act 1992 provided little guidance.”

With securities regulators across the Caribbean experiencing similar problems, the Securities Commission joined a collective regional effort to address the issue, drawing on best practices from the US, UK, Canada and the European Union (EU), and hiring a consultant.

“The draft policy document developed for the Bahamas leans heavily on the proposal provided by the consultant,” the Securities Commission added.

“It is anticipated that these proposals will be adopted, in some form, by all of the members of the cooperating jurisdictions.”