Monumental merger
JP Group, PanJam to merge assets

JAMAICA Producers Group Limited (JP Group) and PanJam Investment Limited have announced a monumental agreement which will see the amalgamation of the asset bases of both businesses, valuing more than $100 billion, in what is one of Jamaica's largest-ever partnerships.

Details of the agreement were outlined in a joint release on the Jamaica Stock Exchange's (JSE) website on Monday, which stated that PanJam will acquire the operating assets of the JP Group in exchange for a 34.5 per cent stake. PanJam will be renamed the Pan Jamaica Group Limited while the JP Group will become the single largest shareholder in PanJam with its shares becoming its sole principal operating asset.

Both companies will remain listed on the Main Market of the JSE as the transaction awaits the approval of their respective shareholders at separate extraordinary general meetings to be convened in the first quarter. Explanatory circulars will be provided to shareholders shortly. While the transaction would not require the Supreme Court's approval, it may possibly require regulatory approvals. The boards of both companies relied on a fairness opinion by Ernst & Young Services Limited to determine the fairness of the transaction to the shareholders of the listed entities.

As of September 30, JP had a combined asset base of $56.97 billion with its market capitalisation standing at $24.23 billion on Monday. PanJam had a combined asset base of $65.39 billion as of September 30 and a market capitalisation of $60.79 billion on Monday.

A history of partnership

"PanJam and JP's co-investment in Mavis Bank Coffee Company was the beginning of a successful journey together. This transaction will combine our strengths and talent," said PanJam CEO Joanna Banks in the release.

"The scale of the balance sheet of the combined Pan Jamaica Group and the depth of our experience will enable us to become the region's investment vehicle and investment partner of choice. The Pan Jamaica Group will have an excellent platform for growth with a leading position in a range of key industries including property and infrastructure, finance, specialty food and logistics. As a geographically and operationally diversified company, we expect to have access to larger investment opportunities around the world, translating to improved shareholder value," she continued.

When asked by the Jamaica Observer about the new corporate structure, Banks said, "The JP assets to be acquired by PanJam will include the major operating assets of Jamaica Producers Group, including its holdings in Kingston Wharves, JP International Group, JP Tropical Group, Grupo Frontera and other associated companies. On completion of the transaction, these key operating assets will all form part of the combined Pan Jamaica Group alongside the key operating assets and associated companies of PanJam Investment. All JP assets that form part of the Pan Jamaica Group will be in a new subsidiary."

The transaction will result in the Pan Jamaica Group having substantial interest in listed companies such as Sagicor Group Jamaica Limited with a 30.23 per cent stake and a combined 42.80 per cent stake in Kingston Wharves Limited (KWL). JP currently owns 42.03 per cent of KW.

Executive chairman of PanJam Stephen Facey will serve as chairman of the Pan Jamaica Group while JP Group Managing Director Jeffrey McGowan Hall will become the CEO and executive vice-chairman. Banks will hold the role of president of the new group.

JP Group Chairman Charles Johnston, Chief Financial Officer Alan Buckland and Hall are expected to join the board of the new entity. Kathleen Moss is a common director on both boards.

PanJam's board charter and corporate governance guidelines are expected to be updated again based on the size of the board, which is defined between seven to ten directors. PanJam's board currently has ten directors with four being executive and the remainder independent.

Banks also added that the employment structure of JP employees with its subsidiaries, associates and joint ventures will not change, but most of the JP corporate team will join the Pan Jamaica Group.

In October 2011 PanJam and JP invested $56.04 million each into Mavis Bank Coffee Factory Limited which was generating losses. The interest in Jablum coffee maker was sold in September 2016 with both parties in the joint venture booking a gain of at least $650 million each.

"This transaction is not our first opportunity to partner with PanJam. We achieved great commercial success for shareholders in our joint investment in Mavis Bank Coffee Company. We also experienced, first-hand, our compatibility around our shared commitment to integrity, seriousness of purpose, nation building and shareholder returns. JP and PanJam operate businesses that have been tested by time and always come out stronger," said Hall in the release.

Market performance

Hall is the ninth-largest shareholder in the JP Group with a 2.69 per cent stake while McGowan Properties Limited, which is connected to the late Dr Marshall McGowan Hall, is the largest shareholder with a 10 per cent stake. Boswell Investments Limited is the largest shareholder in PanJam with a 32.30 per cent stake or 344,361,400 ordinary shares. It is connected to PanJam Chairman Facey and his cousin, Paul Facey, who personally own 3.27 per cent and 1.41 per cent, respectively. The top 10 shareholders for JP control 62.72 per cent of the company while the top 10 shareholders for PanJam control 65.16 per cent of the company.

PanJam's current issued ordinary share count as of September was 1,066,159,890 shares. A proposed issuance to JP would likely see the issuance of 561,565,133 ordinary shares and pushing the share count up to 1,627,725,023 ordinary shares. This would value the shares at $32.02 billion as of Monday's price for PanJam. PanJam received approval from shareholders at its September 2020 annual general meeting to have an additional public offering valued at US$100 million ($15 billion) with the authorised share capital increasing to two billion ordinary shares.

The announcement of the proposed merger came at a time when both stocks had recently hit 52-week lows in a market that is down by more than 10 per cent year to date. While PanJam's price increased by nine per cent over 34 trades to $57.02, JP saw its price go up by 18 per cent to $21.59 over 93 trades, which resulted in it triggering the circuit breaker at 10:06 am. This was the highest JP had been since early June with nearly all its 2022 losses erased. JP's book value is $16.71 while PanJam's book value is $45.89.

JMMB Securities Limited upgraded its recommendation on JP to overweight with a price range of $21.66 to $30.67, while PanJam was downgraded to market weight with a price range between $57.90 and $78.36. VM Wealth has listed JP as one of its top picks for the last two years with both conglomerates given an overweight recommendation in a recent stock watch report. A recent Barita Investments Limited report mentioned both companies as trading below the market on a price to earnings and price to book basis.

JP Group's revenue was up 20 per cent to $21.57 billion for the first nine months of the year with its net profit attributable to shareholders up 37 per cent to $1.45 billion. PanJam's year-to-date revenue was down 46 per cent to $1.56 billion due to the reversal in its investment gains while its net profit attributable to shareholders was down 61 per cent to $1.85 billion. PanJam's revenue was buffeted by the inclusion of $255.55 million in income from its ROK Hotel, Tapestry Collection by Hilton, which opened on July 19. The sale of the residences at ROK are currently exceeding PanJam's expectations.

While a 34.5 per cent stake would result in JP having an associate stake in Pan Jamaica, it's unknown if there might be a subsidiary classification for its interest in the new group of companies.

Hall is a Harvard-trained attorney-at-law who practised banking and securities law in New York before ascending to his current role in July 2007. Meanwhile, Banks is a chartered financial analyst who worked at Fortune 500 companies before becoming CEO in July 2021.

PanJam was founded in November 1964 by the late Maurice Facey as Pan-Jamaican Investment Trust Limited. It currently owns a collection of private investments and real estate properties across Jamaica and North America.

JP Group was founded in December 1936 but traces its roots back to 1924 under the co-operative Jamaica Producers Association. It currently has business operations in food and logistics across the Caribbean and Europe.

"We think major opportunities will present themselves in the coming years and having the capital readily available to the group with these capabilities will be very powerful," Hall closed.

An aerial view of Kingston Wharves Limited.
An aerial view of the Rok Hotel in downtown Kingston .
CEO of PanJam Investments Limited Joanna Banks will serve as president of Pan Jamaica Group Limited.
HALL...this transaction is not our first opportunity to partner with PanJam
JP's head office at Newport West (Photo: JDash)
BY DAVID ROSE Observer business writer davidr@jamaicaobserver.com

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