When Donovan Lewis acquired Three Bears Ltd some three years ago, he gained much more than just a British Virgin Islands-based operation — he snagged a 40.23 per cent holding in Jamaica’s top coffee producer, Salada Foods Jamaica Ltd (JSE: SALF). Since then, Lewis, once a passive shareholder with only a 20 per cent interest in SALF, boosted his stake to over 70 per cent and soon after began to reap the benefits of his investment in the company behind the Mountain Peak brand. Though Lewis’ rise to the top was by no means an easy feat, his accomplishment illustrates that patience and perseverance are essential ingredients for a successful investment.

After taking fifteen years to acquire his initial 20 per cent stake in SALF, things kicked into high gear for Lewis in 2006 when the perfect opportunity came knocking — the Caribbean Investment Fund (CIF), which held a 40 per cent interest in the Jamaican company, was winding up its operations. The savvy businessman purchased Three Bears Ltd (which at the time held 2,052,000 ordinary stock units in SALF) from the CIF and had the foresight to strike while the iron was hot, by grabbing the rest of CIF’s stake in SALF, which amounted to 2,018,981 units. When combined with other SALF units held by various companies under his belt, Lewis’ shareholding totalled 60.23 per cent by the time the ink dried on the Three Bears Ltd deal. However, the acquisitions, which came at a price tag of $100 million (or about $24.56 per share) triggered the mandatory provision of the Jamaica Stock Exchange (JSE). The provision required Lewis, now the majority owner of the company that also produces teas and other beverage mixes, to make a takeover bid for the remaining 39.77 per cent holding he did not already own.

Resultantly, the entrepreneur made an offer of $25.82 per share for the additional stake in SALF, which was thrown out by the company’s board of directors that said that the offer price was too heavily discounted compared with the stock’s trading level of $40.00 at the time of the bid. However, it was explained that the offer price of $25.82 was an average of the transaction price for Three Bears Ltd ($24.56 per share) and $27.08 per share, the price at which the block transfer was put through on the JSE in 2006. The price of $27.08 was in keeping with JSE rules, which stipulated that a block transfer should be priced at a margin of five per cent greater than or less than the stock’s last traded price which was $28.50 at the time of the transfer. Even though Lewis’ takeover bid was rejected, in the end he was still successful as not even a rival offer from Mayberry Investments Ltd (JSE: MIL), which wanted to acquire a 51 per cent holding in SALF for as much as $40.08 per share, could make him budge. The leader of Three Bears Ltd maintained his holding after the rivalry and eventually boosted his stake to over 70 per cent.

Now, three years after taking over the reigns as the majority owner of SALF, Lewis is not only smiling all the way to the bank, but is also being lauded for holding true to his investment philosophy. Back when he made the acquisitions through Three Bears Ltd, some industry players were not confident that the coffee company could continue to brew sustained profits in the foreseeable future. But Lewis, who built his SALF holding over a period of sixteen years, saw what others may have overlooked — the company’s ability to weather the environmental and economic climate as well as its potential to penetrate new niche markets. The proof is in SALF’s performance especially over the past three fiscal years, which lay to rest the concerns of naysayers. In fact, for fiscal 2006/2007 (less than a year after Lewis became the majority owner), SALF almost doubled its profit to $68.16 million following a 13 per cent rise in sales to $342.75 million. The company continued on that upward trajectory recently topping 2007/2008’s record earnings of $75.33 million with a profit of $108.2 million for its financial year ended September 2009.

Apart from jolting its bottom line, SALF also boasts a healthy balance sheet. Between 2006/2007 and 2008/2009, Book Value surged 67 per cent to $457.14 million, mainly due to the company’s decision to reinvest its earnings in the business to ensure future growth. SALF, which channels its products through eighteen companies located across the Caribbean, the North America and the UK, has assets in excess of $526.89 million as at September 30, 2009, representing an increase of 61 per cent over the period (2006/2007 to 2008/2009). The bulk of Assets are held in cash and cash Equivalents which total $275.68 million. The cash-rich company has been able to reinvest a portion of its inflows to generate substantial interest income. Notably, for its most recent financial year, Net Finance Income surged 72.88 per cent to $36.59 million. At its annual general meeting held in January 2009, the company said it also maintains a relatively large cash balance to facilitate a dividend payment which would likely be made some time in 2010.

However, SALF’s board of directors surprised investors by ending the two-decade long dividend hiatus early, declaring a payment of $0.30 per share to be paid on December 14, 2009. Certainly, SALF’s biggest shareholder is the happiest recipient of the news as he is slated to receive in excess of $20 million next Monday based on his current shareholding of over 70 per cent. Of that amount, $12.21 million represents Lewis’ return on his $100-million investment via Three Bears Ltd. In other words, in one single dividend payment, he will have received a 12.21 per cent return in just a three-year time span. Additionally, SALF’s stock price has appreciated 18.34 per cent since November 2008 (when the Company’s Board approved a 10:1 stock split to improve liquidity) to $14.97 (close price on December 7, 2009), representing a gain of over $160 million for the chairman of Three Bears who is also the founder of the Ideal Group of Companies.

Lewis is hailed as a patient and experienced investor — surely his sixteen-year strategy to become the principal owner of SALF was not in vain. As the company continues to explore different options to expand its reach locally and internationally, its chief owner is poised to continue to enjoy the returns.

Kimberly Thelwell is a Research Analyst at Stocks & Securities Ltd. You can contact her at kthelwell@sslinvest.com.