SCOTIA Group Jamaica Limited may use some of its available cash to help fund the roughly $52.1-billion repurchase of minority shares, transaction documents show, as shareholders prepare to vote on October 7 on taking the financial group private.

The estimate is about $1.9 billion below the roughly $54-billion value reported when the transaction was announced in June. The difference reflects an increase in Scotiabank Caribbean Holdings Limited’s ownership of Scotia Group Jamaica from 71.78 per cent to 72.76 per cent after it acquired 30,611,861 shares previously held by the trustee of the company’s Employee Share Ownership Plan.

The 209-page Scheme Booklet also shows that Scotiabank raised its offer after independent financial adviser Ernst & Young had concluded that the original proposal of $60 a share was fair, from a financial point of view, to minority shareholders. The final offer was increased to $61.50 a share.

The booklet sets out the remaining timetable for the privatisation, including the October 7 shareholder vote and an October 30 court hearing.

The $52.1-billion figure is a Jamaica Observer calculation based on Scotia Group Jamaica’s share register as at June 30 and the $61.50 offer price.

At that date, Scotiabank Caribbean Holdings, the controlling shareholder, owned just over 2.264 billion of Scotia Group Jamaica’s approximately 3.112 billion shares, or 72.76 per cent. That left approximately 847.6 million shares in other hands, valued at about $52.1 billion at the offer price. The Scheme Booklet does not state that amount as the final transaction cost.

If the deal is completed, Scotia Group Jamaica will repurchase all shares not owned by Scotiabank Caribbean Holdings, leaving the regional holding company as its sole shareholder. Scotia Group Jamaica would then apply to have its shares removed from the Jamaica Stock Exchange.

The Scheme Booklet provides new details on how the minority shareholders may be paid.

Under the arrangement, Scotiabank Caribbean Holdings is to subscribe for additional shares in Scotia Group Jamaica. The money paid for those shares would go into Scotia Group Jamaica and be used towards the repurchase of the minority holdings.

The documents also allow Scotia Group Jamaica to use some of the cash it already has.

The booklet defines an “SGJL Available Cash Amount” as cash from Scotia Group Jamaica requested by Scotiabank Caribbean Holdings for the payout. Any cash supplied by Scotia Group Jamaica would reduce the amount the controlling shareholder would otherwise have to provide.

The documents do not say whether Scotia Group Jamaica will contribute any of its cash or how much could be used.

Scotia Group Jamaica reported $215.25 billion in consolidated cash resources as at April 30, about four times the estimated $52.1-billion minority payout. The consolidated figure is not the same as cash available for the transaction, however, and the Scheme Booklet does not identify how much could be used for the repurchase.

Scotia Group Jamaica says it has enough cash and liquid assets to meet its debts as they fall due. Its directors also state that the transaction will not adversely affect the company’s financial or operating position or its solvency, and that creditors will not be affected.

Employee shares changed

The increase in Scotiabank Caribbean Holdings’ stake followed a transaction involving Scotia Group Jamaica’s employee share ownership plan.

According to the Scheme Booklet, 30,611,861 Scotia Group Jamaica shares held by the plan’s trustee were exchanged for common shares in parent company The Bank of Nova Scotia.

The Scotia Group Jamaica shares were valued at $61.50 each and acquired by Scotiabank Caribbean Holdings. That reduced the number of shares remaining in minority hands and lowered the estimated cost of the repurchase.

Among the larger shareholders remaining outside Scotiabank Caribbean Holdings at June 30 were Sagicor Pooled Equity Fund, with 1.97 per cent, and the National Insurance Fund, with 1.96 per cent. Several investment and pension funds also appear among Scotia Group Jamaica’s 10 largest shareholders.

Offer moved from $60 to $61.50

The Scheme Booklet also provides a fuller account of the negotiations that produced the final price.

It says Scotiabank and Scotiabank Caribbean Holdings approached the Scotia Group Jamaica board on April 28 with an initial non-binding proposal of $60 a share, payable in Jamaican dollars.

An independent committee of directors was established to consider the proposal and retained Ernst & Young as its independent financial adviser.

Ernst & Young assessed the $60 offer using several approaches, including analyses of Scotia Group Jamaica’s different businesses and comparisons with market and transaction data.

According to the booklet, Ernst & Young advised the independent committee by June 9 that the $60 offer was fair, from a financial point of view, to minority shareholders and that it was prepared to issue a written opinion to that effect.

The following evening, Scotiabank Caribbean Holdings returned with an improved offer of $61.50 a share, including an option for shareholders to receive the equivalent payment in US dollars.

The independent committee subsequently concluded that the revised transaction was in Scotia Group Jamaica’s best interests and that the $61.50 payment was fair to minority shareholders. The board approved the deal, with directors who had material relationships with Scotiabank and its affiliates abstaining.

Ernst & Young’s written fairness opinion, dated June 11, relates specifically to the original $60 proposal.

The firm says the purpose of its opinion was not to determine the value of Scotia Group Jamaica or its shares. It also says the opinion should not be treated as a recommendation on whether shareholders should support the transaction and does not provide assurance that the offer was the best price.

Its conclusion was that the $60 proposal was fair, from a financial point of view, to minority shareholders, subject to the assumptions and limitations set out in its report.

The final offer of $61.50 represents a 13.3 per cent premium to Scotia Group Jamaica’s closing price of $54.30 immediately before the transaction was announced. The Scheme Booklet puts the premium at 18.5 per cent over the three-month volume-weighted average price and 17 per cent over the one-year average.

October 7 decision

Minority shareholders are scheduled to meet at 11:00 am on October 7 at AC Hotel by Marriott in Kingston. Scotiabank Caribbean Holdings will hold a separate meeting at the same location at 10:00 am.

The Supreme Court authorised both meetings in an order dated July 15.

For the minority shareholders to approve the transaction, more than half of those present and voting, either in person or by proxy, must support it. Those voting in favour must also represent at least 75 per cent of the value of the shares voted.

The court order sets the quorum — the minimum attendance required for the minority meeting to proceed — at two minority shareholders, present in person or by proxy. The higher voting thresholds must still be met for the transaction to pass.

Shareholders who cannot attend may appoint someone to vote on their behalf. Proxy forms must be received by 11:00 am on October 5.

The proxy documents state that if a shareholder submits a valid signed form without naming a proxy, or the named person does not attend, the meeting chairman will become that shareholder’s proxy. If no voting instruction is given, the chairman will vote the shares in favour of the transaction, in line with the board’s recommendation.

If the required votes are obtained, Scotia Group Jamaica is scheduled to return to the Supreme Court on October 30 to seek final approval of the arrangement.

According to the Scheme Booklet, the transaction would take effect when the final court order is filed with the Companies Office of Jamaica. Minority shareholders would be paid 10 business days after that date. The company says the timetable is indicative and may change.

Once approved by the court, the arrangement would bind all minority shareholders, including those who voted against it or did not vote. Their shares would be repurchased for the same $61.50 each.

Shareholders may accept payment in Jamaican dollars or elect to receive the US-dollar equivalent, based on the Bank of Jamaica’s weighted average selling rate published three days before the settlement date.

If the shareholder and court approvals are secured and the other conditions are met, Scotiabank Caribbean Holdings would become Scotia Group Jamaica’s sole shareholder, paving the way for the company’s removal from the Jamaica Stock Exchange.