Accept CW offer for shares — JN Fund Managers


Friday, January 19, 2018

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Investors who bought Cable & Wireless Jamaica (CWJ) shares in the latter half of 2015, in February 2016, or in March 2017, may be a little annoyed at the offer price of $1.45 being offered by CWC CALA Holdings. However, according to the research department of JN Fund Managers, the $1.45 is a fair offer for the company.

The team, led by Ramone Small Ferguson, advises: “We believe that investors should accept the offer, exit CWJ and reinvest earnings into other more profitable companies with more robust business models and a clear strategic focus.”

On the 28th of December 2017, CWC CALA Holdings Ltd presented an offer and take-over bid to all shareholders of CWJ. As at December 29th 2017, CWC CALA Holdings along with an affiliate, Kelfenora, owned approximately 82 per cent (13.79B units) of CWJ Ltd. CWC CALA is looking to acquire 3,027,138,546 ordinary shares in CWJ for J$1.45 per share which, together with CWC CALA's direct and indirect 82 per cent of shares already owned, would bring total ownership to 100 per cent. The offer is expected to close on the 31st of January 2018. In reports to the media, CWC CALA has advised that once it has received acceptances of 90 per cent or more of the minority stock held in CWJ as a result of this offer, it intends to exercise its right under the Companies Act of Jamaica to compulsorily acquire all remaining shares, including those who have expressly dissented or have failed to respond to this offer.

The JN Fund Managers team also notes that, “Many investors will likely take up CWJ's offer, as many have grown weary of the lack of profitability and strategic focus of the Company over the years. As such, it is likely that CWJ will receive the additional eight per cent of outstanding shares needed to acquire the shares of all remaining shareholders.”

The investment banking team further notes, “CWC CALA's offer to acquire additional shares of CWJ at $1.45 represents a 31.82 per cent premium to the last traded price on the Jamaican Stock Exchange before the offer was received ($1.10). The premium compares favourably when CWJ's historical lack of profitability and anaemic trading history is considered.”

The team notes that Jamaica's telecoms sector is largely characterised by its maturing mobile sector. The merger between Digicel and Claro's Jamaican business in 2012 strengthened Digicel's dominance of the sector. Both Digicel and its only rival, Flow (supported by its new owner Liberty Global), have extended their 3G network across the island and have also invested in developing their LTE services. This progress has considerably improved access to broadband services, with mobile internet accounting for the majority of internet access. The Jamaican Government has endeavoured to develop the sector in a bid to improve competition. Although they had intended to license up to 12 operators, only one company, Symbiote Investments, has been licensed thus far.

The JN Fund Managers team suggests that one of the major challenges to the telecoms industry in Jamaica is that the business model was largely built on the strength of selling phone credit for traditional calls. However, the internet changed that.

“Both Digicel and CWJ have traditionally been heavily reliant on expanding their customer base through increased penetration, but as penetration surpassed 100 per cent, both have had to find innovative ways to generate income. The advent of internet-based calls on platforms such as Whatsapp, Vonage, Viber, Facebook, Messenger etc. has eaten away at retail phone credit sales and has shifted Digicel and CWJ's focus more towards data charges for such services and expanding their 4G internet penetration.”




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