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BUSINESS GUARDIAN guardian.co.tt JANUARY 26 • 2017
Cemex ends long dance with TCL
By the time this story is read, the
offer period for the takeover
bid launched by Mexican ce-
ment giant Cemex in Decem-
ber 2016 for Trinidad Cement
Ltd (TCL) would have expired;
with the only thing left to tally being what
percentage of TCL Cemex ends up acquiring.
The journey to this point can be seen as
a clear case of patience and well-timed
opportunism on the part of Cemex, made
easier by the prevailing circumstances that
TCL---through the better part of almost two
decades---managed to find itself in.
On January 20, 2017, Cemex announced that
it had surpassed its minimum threshold of
acquiring 50.01 per cent of TCL.
And just like that, the decades' long battle
for the Caribbean cement producer was es-
TCL's history with Cemex dates back to
1994 when Cemex purchased a 20 per cent
stake in the company from the government
of T&T. Since then, Cemex has had its sights
firmly set on consolidating TCL into its op-
erations and leveraging the brand equity of
TCL in the regional market.
In January 2002, Cemex launched an un-
successful bid to acquire 100 per cent inter-
est in TCL. At that time, Cemex was offering
US$0.92 per share or TT$5.62 at the then pre-
vailing exchange rate. The company was also
seeking the removal of the shareholder limit,
which stated that no single shareholder could
have more than 20 per cent shareholding of
TCL. That bid was roundly rejected by the then
Andy Bhajan-led board.
Subsequently, Cemex revised its takeover
offer, raising the bid price to TT$7.15 per share
to acquire 100 per cent interest in TCL. This
offer was also rejected subject to the removal
of the 20 per cent cap on shareholding and a
minister's licence for Cemex to acquire the
A valuation exercise---undertaken at the
time by the board---determined that Cemex
had grossly undervalued TCL's share in its bid
to acquire the company. The TCL board based
its recommendation to shareholders to reject
the offer on the basis of the exercise carried
out by JP Morgan whose analysis determined
that the shares were worth upwards of TT$10
at the time.
After the events of 2002, TCL began to
encounter various financial and operational
challenges. Firstly, in 2004, a company called
Baleno Holdings appeared on the TCL land-
scape, having acquired an 8.21 per cent inter-
est in the company. At the time, the company
acquired roughly 21 million TCL shares from
companies such as Associated Brands Ltd,
Guardian Holdings, and Neal and Massy (now
Massy Group). Arthur Lok Jack---who chaired
all three companies at time---was known to be
sympathetic to Cemex' initial bid to acquire
TCL in 2002 and had his board appointment
revoked in the same year.
In February 2012, close to 600 TCL em-
ployees in T&T went on a 90-day strike after
salary negotiations broke down. The strike
affected production, dealing another blow to
the already staggering company (in 2012 the
company registered a loss of $344.5 million).
Additionally, TCL was forced to settle with
workers with a package that was estimated
by the Oilfield Workers Trade Union (OWTU)
president Ancel Roget to be around $150 mil-
The company then began to incur debt
financing issues, racking up corporate debt
to the tune of roughly US$292 million by
the end of 2014. The company had its credit
rating pegged as "junk" by New York-based
S&P Ratings services in October 2013, after
the company defaulted on part of its debt
repayment; the second time it had done so
in ten years.
In May 2014, TCL tried to gain some breath-
ing space by attempting to extend its maturing
debt by floating an international bond to the
tune of roughly US$325 million. However, the
company was forced to shelf the transaction
due to low order volumes.
A declining cash position, weakening bal-
ance sheet, a constant stream of losses and
shareholders clamouring for change all co-
alesced into the perfect storm for TCL. But
while others saw a company on the brink of
financial ruin, Cemex saw an opening; an
opportunity it had patiently been waiting to
capture for many years.
At a special meeting held on August 19,
2014, shareholders revolted against the board
and CEO of the company and summarily voted
to have them removed.
The new board---now led by chairman and
significant shareholder Wilfred Espinet---be-
gan a series of moves aimed at restructuring
Firstly, the new board sought to recapitalise
the company. To do this, the board conducted a
rights issue which saw Cemex paying TT$2.90
per share, and increasing its stake in the com-
pany from 20 per to 39.5 per cent. The rights
issue allowed the board to raise over US$50
million in much needed capital in the process.
Cemex also entered into a technical service
agreement with TCL which saw it appointing
a new group CEO and other key executives to
the TCL group and subsidiaries.
TCL then entered into debt restructuring
which resulted in the company receiving a
TT$199.4 million haircut on its principal
amount of debt owed under a new five-year
loan agreement between the company and its
lenders. The total debt after the restructuring
stood at US$245 million.
In general, and prior to the restructuring
event, TCL's historical profitability had been
hampered by finance costs as a result of high
leverage and the resulting interest costs.
In 2015, after years of declining profitabili-
ty, the group began turning a profit largely as
the result of successful debt and operational
restructuring and reduced costs in territories
such as Barbados and Jamaica on the back of
lower oil prices.
In 2015 the company declared a profit after
tax of $428.7 million.
Having witnessed the company undergo
the arduous task of cleaning up its financial
and operational affairs, Cemex made its over-
ture for complete consolidation of TCL into
On December 5, 2016, Cemex announced
a takeover bid for TCL, seeking to acquire at
minimum, 50.01 per cent of the shares out-
standing, while willing to take its position all
the way up to 74.9 per cent equity interest in
the company. The offer price per share was
TT$4.50 per share. The offer was summarily
rebuffed by the TCL board, who appointed a
special committee to commission a fairness
opinion from Ernst and Young Services Ltd.
EYSL advised that the offer be rejected,
deeming it as "not fair, from a financial point
of view." In this publication, it was advanced
in the December 8, 2016 editorial that Cemex
not only grossly undervalued the TCL shares in
its takeover bid, but its failure to offer share-
holders US dollars as part of its offer (which
was done in its 2002 takeover bid) was an
Cemex then increased its takeover bid for
TCL in an amended offer on January 9, 2017,
moving the offer price from $4.50 per share to
$5.07 per share, with the offer of shareholders
in Jamaica and Trinidad the opportunity to be
paid in US dollars.
On January 20, after a second fairness opin-
ion, it was determined that the revised offer
was not fair, and shareholders were again
prompted to reject the offer. Along with the
new fairness opinion, TCL also published the
findings of a valuation report undertaken by
EYSL in December 2016. According to the
valuation exercise, TCL shares were valued
at between $5.60 and $6.18 per share with a
mid-point value of $5.89 per share.
A day later, Cemex announced that it had
crossed the 50.01 per threshold effectively
bringing an end to its battle for TCL.
Of great interest in the acquisition of TCL
shares by Cemex is the fact that three direc-
tors, inclusive of the chairman---whose col-
lective shareholding represented a 3.07 equity
interest in the company---chose to accept the
amended offer from Cemex.
The shareholders, Wilfred Espinet (con-
trolling 2.75 per cent), Wayne Yip Choy (con-
trolling 0.23 per cent) and Arun Goyal (con-
trolling 0.09 per cent) stand to walk away with
US$7. 8 million, US$667,702 and US$255,877
respectively when Cemex settles payment for
their shares. This was done in spite of the fact
that the fairness opinion, signed off by the
board, advised other shareholders to reject
Cemex' amended offer.
Additionally, the fact that the directors
chose to withhold the conclusion of the val-
uation exercise from shareholders raises its
own set of questions.
Ultimately, TCL's faith now rests in the
hands of the decision makers in Mexico.
In this August 2014
Trinidad Cement Ltd director
Glenn Hamel-Smith, second
from right, raises his hand in
support of TCL's new board
during the company's special
meeting at the Radisson
Also in photo are: new board
members Alison Lewis, from
left, Carlos Pallero, Francisco
Aguilera and Christopher
PHOTO: ABRAHAM DIAZ
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