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Mayberry rejects Berger offer of $10.88

BY KARENA BENNETT
Business reporter
bennettk@jamaicaobserver.com

Friday, September 22, 2017

Financial outfit and shareholder of Berger Paints Jamaica Ltd (BRG), Mayberry Investments Ltd, is rejecting the offer of $10.88 or US$0.08485 per share by international paint giant Ansa Coating International Ltd (ACI), which seeks to acquire remaining BRG shares on the market following acquisition of the local paint company last month.

The decision — which was agreed on by independent directors of BRG — saw the wholly owned subsidiary of ACI, ANSA McAL, looking to acquire the remaining 104,990,171 Berger Jamaica shares not in its hands at $10.88 or US$0.08485. That price is $0.35 below the $11.23 per share traded yesterday.

The offer opened at 9:00 am on September 7th, 2017 with an extended closing date on October 9, 2017 at 4:00 pm.

ANSA McAL has made clear its intention to delist the Berger Jamaica shares, since the acceptances of the offer should take the aggregate holdings of the group beyond 80 per cent. In that event, the shares will thereafter not be tradable across the floor of the JSE.

Additionally, all transfers will be subject to the payment of transfer tax and stamp duty. It means that the decision to not take up the offer by ANSA McAL would remove the ability for the easy trading of the 104.9 million shares held by minority shareholders who did not sell to the group.

But in a report yesterday, Mayberry — which owns 3,548,229 shares in BRG — disagreed with the position of the independent directors of BRG, and based on its own valuation of the company maintained that shareholders should reject the offer made by ACI.

“BRG's performance year to date has shown an increase in revenues and an improvement in profit from operations. The operating profit and net profit margins for the three months ended June 2017 was 6.87 per cent and 5.15 per cent respectively. This performance indicates that the company is benefiting from previous investments that improved processes, lowered energy costs, increased efficiency through plant and machinery upgrades as well as flat raw material costs,” Mayberry said.

It added that as the local macroeconomic indicators continue to trend upwards, BRG is expected to see an increase in business activity. According to Mayberry, revenue from the sale of paint is projected to increase, driven by an expansion in the construction industry, which was used as a proxy to project paint sales.

The financial outfit drew on data presented by the Planning Institute of Jamaica for the review period April — June 2017, which estimated that construction grew by 1.5 per cent. The growth, according to the PIOJ, was due to an increase in building construction led by the building out of office space to facilitate expansion of business processing outsourcing.

“As the construction industry continues to experience robust growth, BRG stands to improve its sales revenues; BRG continues to be the most dominant player in the decorative paints market and is continuing to increase its market share. The growth in the company's market share should have a positive impact on revenues and margin,” it said.

For the 2017 financial year, revenue of BRG is projected to increase by five per cent, given the expected expansion in the construction industry and the current marketing campaign to increase market share. Operating profit margin is expected to average 15 per cent for the projected period,compared to the 2017 year-end margin of 15.48 per cent.

“It is consistent with the investment in equipment to increase efficiency, which should continue to pay off into 2017,” Mayberry said.

“For the FY2018 year end, BRG's earnings per share (EPS) is projected at $1.49 (2017: $1.47), while the 12 months projected EPS is $1.50. The stock is currently trading in the area of $11.23 per share as at September 21, 2017 and is projected at $15 for the next twelve months using a P/E of 10 times. Further, BRG has not closed below the price offered of $10.88 since January 30, 2017, which is also below the average price of $14.06 reported since the beginning of 2017,” the report continued.

Mayberry argued that the projections put the buyback price of $10.88 at 37.86 per cent below its medium-term valuation and, if accepted, shareholders would forgo an approximated $0.35 per share compared to the current price of $11.23, and an estimated $4.12 per share relative to the projected price of $15.

“It should also be noted that on the date that the offer opened (September 7, 2017), the stock closed at a price of $12.06, coming from a price of $15.81 as at August 31, 2017.

It is against this backdrop that Mayberry has concluded that the price being offered by ACI is well below the current and medium-term projected value of the BRG stock. With this in mind, it is the position of Mayberry that shareholders should reject ACI's current offer,” Mayberry said.

On July 24, 2017, ACI purchased 100 per cent of shareholdings in Lewis Berger (Overseas Holdings) Limited. As a result of the acquisition, Ansa McAL indirectly holds 109,332,222 ordinary shares in BRG, which represents 51.01 per cent of the shares in issue.

As the majority shareholder, ACI has made a mandatory offer pursuant to section 19 of the Rules Governing Take-Overs and Mergers in the Jamaica Stock Exchange's Rule Book to purchase the remaining BRG shares on the market.