Home' Trinidad and Tobago Guardian : January 9th 2014 Contents JANUARY 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In the last fortnight, two local, publicly
listed companies, National Enterprises
Ltd (NEL) and Neal & Massy, made three
significant acquisitions that may or may
not enhance their shareholder value.
NEL agreed to purchase the ten per cent stake
in PowerGen, the electricity-generation com-
pany, that had been held by a wholly owned
subsidiary of BP, the global energy major.
Neal & Massy acquired 63.3 per cent of a St
Lucian company called Gablewoods, which gives
the local conglomerate a controlling interest in
a company that operates supermarket chains
in St Lucia and St Vincent. Neal & Massy also
purchased an additional 42.7 per cent of Indus-
trial Gases Ltd from Air Liquide, which, along
with its prior 57.3 per cent stake, means that
the conglomerate now owns 100 per cent of
These three acquisitions follow last year s
purchase by state-owned National Gas Company
(NGC) of an additional 39 per cent stake in
Phoenix Park Gas Processors for US$600 million
from ConocoPhillips. NGC also spent US$473
million to purchase two former Total subsidiaries
that control 30 per cent of Block 2 (c) and 8.5
per cent of Block 3 (a).
Last year, as well, ANSA Merchant Bank
acquired Consolidated Finance Company of
Barbados from its parent company for US$26.5
million. Republic Bank acquired 40 per cent of
a bank in Ghana and the remaining 34.86 per
cent shareholding in what used to be known
as the Barbados National Bank.
In total, these eight acquisitions are a positive
sign for the local capital markets as it may signal
that T&T companies are once again becoming
more adventurous by deploying their cash
reserves in search of future growth. Hopefully,
that growth will redound to the benefit of T&T
shareholders and holders of equity-based mutual
While growth by acquisition may be appro-
priate for local, publicly listed firms (which
account for six of the eight transactions), it is
also expected that regulators insist that the
acquirers are fully compliant with the highest
standards of corporate governance.
Regrettably, the three most recent transactions
by NEL and Neal & Massy appear to have fallen
short in disclosure---one of the most important
corporate governance standards expected of
Last week Thursday, I wrote a letter of com-
plaint on this issue to Wain Iton, the new chief
executive of the T&T Securities and Exchange
In the letter, which Mr Iton received on his
first day at his new job, I complained about
what I considered to be a serious breach of the
disclosure requirements outlined in the Securities
Act 2012 committed by NEL.
In December, NEL disclosed that it had closed
an agreement to purchase a ten per cent stake
in PowerGen, which is majority owned by
T&TEC, from a BP subsidiary.
In a statement that was posted on the website
of the T&T Stock Exchange on December 27,
NEL disclosed that it had transferred the assets
of the BP company into a newly formed sub-
sidiary of NEL called NEL Power Holdings Lim-
The NEL statement disclosed, as well, that
the Unit Trust Corporation had been invited to
participate in the purchase and agreed to acquire
ten per cent of NPHL, which in effect, would
be one per cent of PowerGen.
The investing public was also informed that
a sale and purchase agreement on terms and
at a purchase price acceptable to both parties
was negotiated between NEL and BP "after a
through financial, legal and technical review of
ATPRC and PowerGen itself."
What NEL did not disclose were the terms
of the agreement, the actual purchase price that
was agreed by both parties and the impact that
the acquisition would have on NEL s balance
sheet and its profit statements in the future.
Imagine that current and potential NEL
investors were told that the company had
received financial advice on the transaction from
PwC and legal advice from LEX Caribbean Ltd,
but not how much the company paid for the
Contacted for comment on NEL s failure to
disclose the amount of money it paid for the
recent acquisition, the company s chairman
Kenny Lue Chee Lip said: "I have confirmed
that confidentiality clauses in the purchasing
agreement do not allow us to provide the
requested information publicly. We are preparing
a newspaper advertisement on the purchase
and we will give as much information as we
can divulge. Thanks for raising this issue with
Now, one of the basic tenets of investment
is that all investors and potential investors must
have access to full and timely disclosure of
material information in the companies that they
are invested in or are likely to invest in.
While the Securities Act 2012 does not define
material information, it states that a material
fact when used in relation to the affairs of an
issuer or its securities, is "a fact or a series of
facts, the disclosure of which would be con-
sidered important to a reasonable investor in
making an investment decision."
The act defines a material change as "a change
in the business, operations, assets or ownership
of an issuer, the disclosure of which would be
considered important to a reasonable investor
in making an investment decision."
It seems evident to me that the price that
NEL paid BP for its stake in PowerGen, and the
impact that that stake will have on NEL s future
are facts "which would be considered important
to a reasonable investor in making an investment
The same applies to Neal & Massy, which
made two acquisitions at the end of last year
and which also claims that confidentiality
requirements prevent it from disclosing the
actual sums they paid.
In other words, in the absence of knowledge
about the considerations that NEL and Neal &
Massy paid for their acquisitions---and the impact
of those acquisitions on the future of those
companies---no "reasonable" current investor
can be certain that the valuations of the com-
panies are justified.
And no reasonable, potential investor in either
NEL or Neal & Massy could be in a position
to make a decision to invest in either of these
two companies without knowing what they
paid for their recent acquisitions.
In effect, by playing the confidentiality card,
the directors of NEL and Neal & Massy may be
doing their companies a serious disservice by
creating doubt about whether these acquisitions
enhance shareholder value.
Failure to disclose material or price-sensitive
information also opens the door to insider
trading or the perception of insider trading, as,
it must be assumed that all the directors and
senior officers of NEL and Neal & Massy know
the acquisition costs.
Any trading in these shares is now fraught
It is useful to note that one of the key func-
tions of the TTSEC is "to regulate and supervise
the timely, accurate, fair and efficient disclosure
of information to the securities industry and
the investing public."
At Section 64 (1), the Securities Act 2012
requires that companies "shall within three days
of the occurence of the material change, file
with the TTSEC the prescribed report disclosing
the nature and substance of the material change."
Companies are also required to publish a
notice in two daily newspapers within seven
days of the occurence of the material change.
Section 64 (1) is subject to subsection 64 (2),
which states that the requirement to disclose
a material change shall not apply if the company
is of the opinion that "the disclosure required
by subsection (1) would be unduly detrimental
to its interests; or the disclosure required by
subsection (1) would be unwarranted."
Would it be absurd to conclude that the rea-
son NEL and Neal & Massy are refusing to dis-
close the acquisition costs is because to do so
would be "unduly detrimental" to their interests?
The act at Section 64 (3), states that TTSEC
can require companies to disclose if it does not
agree that disclosure would be "unduly detri-
mental" to the company.
Interestingly, the T&T Stock Exchange s 2010
Disclosure Regime allows listed companies to
delay or keep temporarily confidential the dis-
closure of material information "where imme-
diate release of the information would be unduly
detrimental to the interest of the company."
But this applies to premature disclosure of
a transaction or disclosure of information that
would "provide competitors with confidential
Neither case applies to the position of a listed
company reporting, after the fact, the details
of acquisitions fully to its shareholders and its
Finally, in the 2007 case of Wolfson Micro-
electronics, the UK regulators found that a con-
fidentiality agreement was no excuse for not
announcing price-sensitive information as a
well-drafted contract should allow for
announcements required by law or by a reg-
The directors of NEL and Neal & Massy
would do well to note that Wolfson was fined
£200,000, which was reduced to £140,000
for an early settlement.
Will the TTSEC under its new CEO take
action against NEL and Neal & Massy to insist
on timely, accurate, fair and efficient disclosure
Or will local public companies continue to
flout the spirit of decades of stock market prac-
tice, which requires timely and full disclosure
of price information after an acquisition has
Why are NEL, N&M hiding material facts?
Kenny Lue Chee Lip. NEL chairman
Wain Iton, CEO of the SEC
Gervase Warner, CEO of Neal & Massy
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