COMPANIES trading below book value on the Jamaica Stock Exchange (JSE) should consider acquisitions or mergers or even liquidation to realise shareholder value, a partner in respected auditing firm Deloitte has suggested.

However, Anura Jayatillake has cautioned that the decision to liquidate should not be taken lightly, as there are many ways in which shareholders can create or realise their value.

Addressing a Mona School of Business conference in Kingston earlier this month, Jayatillake used Goodyear Jamaica as an example while declaring up front that he was the liquidator for that company.

“When the company went into liquidation in 2008… they made a profit of $13.6 million,” Jayatillake said. “So, if the company is profitable, should they have decided to voluntarily liquidate the company? Have they been creating value? So, well, you could ask this perhaps by looking at this… the year before liquidation, the report on equity was $470 million. So if you have an equity of $470 million and your profits are $13.6 million, you are talking of a 2.9 per cent return. So obviously you are not creating shareholder value, even though you have profits. You are really destroying shareholder value because you are not generating sufficient return.”

He said that at the time the company went into liquidation the share price was $3.26, which was substantially below the book value. “Now, since liquidation… the liquidator has so far paid out $5.43 per share, which is 67 per cent more than the share price in 2008,” he said.

“Now, you must look at it in the context that more than 90 per cent of the companies’ share prices are below that of the peak share prices in mid-2008 and in fact the highest gain is from Seprod that has recorded a 24 per cent increase in share price. So, I wouldn’t say that this should be a strategy for all the companies, but certainly you will get the point that, you know there are so many ways perhaps that shareholders can create or realise their value,” he added.

“Now, if you look at the statistics as at 31st March 2011, of the companies listed on Jamaica Stock Exchange 69 per cent of the companies are trading below the book values. So I think there is a case for at least some of the companies to really look at whether… their value as a growing concern is higher than the value in a possible liquidation. Once you do that analysis you may be able to identify perhaps some of the underperforming units that may require perhaps disposal or maybe consider acquisitions or mergers or even to consider even liquidation to realise value,” said Jayatillake.

Deloitte Touche Tohmatsu Ltd, an organisation of member firms located in over 140 countries, including Jamaica, provides audit, consulting, tax and financial advisory services.

Jayatillake said that one can increase shareholder value by addressing four key areas outlined in an adaptation of Deloitte’s Enterprise Value Map, a spreadsheet developed jointly by Deloitte and the Distribution Research and Education Foundation. They included increasing revenue growth, operating margins (after taxes), asset efficiency and expectations.