The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

GB Power's top executive yesterday said "the ship sailed on" significant Bahamian ownership in 2010, as he sought to reassure minority shareholders over the $35 million buy-out's motives.

Archibald Collins told Tribune Business that the $8.85 per share cash price offered to ICD Utilities' Bahamian investors was "extremely fair", given that the latter's stock had never been above $8 for the past decade.

Responding to concerns raised over Emera's buy-out proposal, Mr Collins said the Canadian utility had "nothing up its sleeve" or any "big scheme" to take advantage of local shareholders.

He explained that the transaction was "the last piece of the puzzle" for Emera's Caribbean operations, representing a continuation of the strategy that saw it make a similar offer to minority shareholders in Barbados, which was accepted in late 2015.

Mr Collins said Emera and GB Power were using the same model with respect to ICD Utilities, and revealed that the buy-out offer would have been made last year had it not been "derailed" by Hurricane Matthew and $28 million in repair costs.

While acknowledging that shareholders choosing to exchange their ICD Utilities shares for Emera Depository Receipts (DRs) will be subject to a 25 per cent Canadian withholding tax on all dividend payments, Mr Collins said the yield would still be "double" what they have received in the Bahamas over the past 10 years.

And, while some have called for GB Power share to be offered to ICD Utilities shareholders, Mr Collins said this option was "never considered" as Emera's goal was to streamline the energy monopoly's ownership.

Disclosing that Emera was fully aware of the nationalist sentiments that would be stirred by a foreign company potentially acquiring 100 per cent ownership of a key Bahamian utility asset, Mr Collins said the Canadian utility - and ICD Utilities' independent directors - had taken great care to ensure the price and options offered were "extremely fair".

"We had many meetings ahead of time where we talked about nationalist sentiment," he told Tribune Business. "We were aware there would be some people saying: 'Here we go again, selling off the Crown Jewels'.

"We thought about that carefully, but tried to be sure the offer made was extremely fair. We understand there may be disquiet in some quarters, but we were very careful to make sure the offer was extremely fair."

Pointing out that Emera had been taking all the key operational and investment decisions at GB Power since it acquired 80.4 per cent majority control in 2010, Mr Collins added of significant Bahamian ownership: "That ship sailed back in 2010.

"Whether or not the company is owned 19.36 per cent by minority shareholders doesn't materially change the way it operates. I don't want to disrespect the sentiment about Bahamian assets being owned by a foreign company. I get that. It happens in Canada every day with Chinese companies.

"I understand it, I respect it, but the other side of the coin is it's not like there's a huge line-up of companies that are expressing confidence in the Grand Bahama economy. We are, by virtue of this transaction, saying we think this is a good place to do business and want to become an even bigger investor in this company," he continued.

"That's a positive message in it. We're not running for the door. This is a good place to do business, and we want to double down. If shareholders don't like the offer or the foreign ownership, they have right to say no, and we will respect that."

The $8.85 cash price offered to the 19.6 per cent minority interest in GB Power Company is a 26 per cent premium to the current BISX trading price, and 33 per cent higher than the 24-month volume weighted average price.

Several minority investors have argued that $8.85 per share undervalues their investment, but Mr Collins yesterday said ICD Utilities' stock has never been above the $8.20 that it paid to Lady Henrietta St George for her 50 per cent stake in September 2008.

He added that Emera acquired the remainder of its 80.4 per cent equity stake in GB Power by paying former majority shareholder, Marubeni, a $7.20 per share price in December 2010.

"Since 2008, when we paid $8.20 per share, it's never been above that. I don't know what the metric is that makes people say their shares are worth more," Mr Collins said of the under-valuation concerns.

"It's not been above $8.20 in 10 years. We thought it was fair, KPMG thought it was fair, and it represents a healthy premium above the last price before the transaction was announced."

Mr Collins added that ICD Utilities investors could remain as indirect GB Power shareholders, although they would be "diluted in a certain way", by electing to exchange their shares for Emera Depository Receipts (DRs) in whole or in part.

He said this would allow them to diversify their investment portfolio into international securities, while also providing the opportunity to benefit from upside generated by Emera's North American, Canadian and Caribbean assets.

Pointing out that as a non-resident he, too, would be subject to a 25 per cent withholding tax on the proceeds from Canadian investments, Mr Collins told Tribune Business: "I can't get around it, and Bahamian residents can't get around it. It's a kick in the teeth, but it is what it is.

"The 25 per cent withholding tax is real. Emera did not dream it up. But even when you factor in the 25 per cent tax, you're still left with a net yield of around 3.5 per cent from a dividend perspective, which is double what ICD Utilities has offered over the last 10 years."

Fred Smith QC, the Callenders & Co attorney and partner, has argued that if Emera wanted to simplify GB Power's corporate ownership structure it could eliminate ICD Utilities by offering one share in the former for every two in the latter.

"Is that an option? I suppose so," Mr Collins replied, when it was put to him by Tribune Business. "But it wasn't an option we considered, because the objective here is to streamline the ownership of the company with a single shareholder.

"Was it an option? Yes. Was it considered? No. But it wasn't to shut Bahamians out of GB Power. The DR is the vehicle that will allow Bahamians to have an indirect interest in the ownership of GB Power Company."

Mr Collins said Emera and GB Power had followed all Bahamian and Canadian regulations, and established global capital markets practice, in making their buy-out offer. He added that the companies had to be "appropriately discrete" in how they announced it to prevent insider trading, as two publicly-traded companies were involved.

He added that the offer was an extension of the strategy initiated by Emera in 2014, which led to the Barbados minority buy-out in late 2015. "We would hope the Bahamas is the third," Mr Collins told Tribune Business.

"We undertook that first piece [Barbados], and the intention was to immediately follow up with an offer to the minority shareholders in the Bahamas, and then Matthew got in the way and sidelined us."

Aware that Emera would be accused of trying to buy-out Bahamian shareholders at the company's lowest point, and of seeking a 'low ball' price, the plan was placed on hold while GB Power's network infrastructure was repaired.

"There's nothing magical about the timing," Mr Collins said. "This is part of the strategy begun in 2014. This is the last piece of the puzzle. Matthew derailed us, and we revived the conversations, revived the thinking around it, in early 2017.

"For the Doubting Thomases that say if this thing is allowed to happen things are going to go to hell, and costs are going to go up, our response is that talk is cheap. If you look at our track record in Barbados, the management team is the same, the pricing has not changed and reliability has not changed."