Financial Services Commission floats 30% takeover rule
Published:Tuesday | January 26, 2016 | 6:35 AMTameka Gordon
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The Financial Services Commission has floated the possibility of adjusting the mergers and acquisitions rule on the stock market to trigger a mandatory takeover offer once an investor acquires 30 per cent of a listed company, a transformative proposal that brokers say could hurt rather help the market.
Currently, the mandatory takeover offer is triggered at over 50 per cent acquisition. Once ownership hits that threshold, the holder of the shares is required to make an offer to purchase all other outstanding shares held by minority owners, who may or may not accept the offer.
The FSC, as regulator of the financial markets, has written to the Jamaica Stock Exchange (JSE) outlining its position on the proposed 20-point adjustment to the threshold down to 30 per cent, and seeking feedback.
JSE Group General Manager Marlene Street Forest confirmed to Wednesday Business that the JSE's regulatory committee is now mulling the FSC's proposal, but refused to signal whether the exchange was inclined to support it.
"A review is being done on the submission from the FSC and as result I would not be able to speak until after a thorough review of the submission is done," said Street Forrest.
Securities dealers were a lot more forthright, saying the 30 per cent trigger was "too low for the local market".
President of the Jamaica Securities Dealers Association Julian Mair said that while international markets can sustain a 30 per cent threshold, simply because they are larger, the limited scope of Jamaica's stock market suggests that adopting the same benchmark could have negative spin-offs.
He is arguing that the lower trigger could dissuade acquisitions.
"In the international market at 30 per cent, simply because those markets are so deep, if one party holds 30 per cent then it could be deemed that they have too much of a say or a guiding voice in the direction of a company. That wouldn't be the case in Jamaica," said Mair, who is also chief investment officer at JMMB Group.
Because of that lack of depth, "just the fact that we are a small market would mean that there would be other significant parties at the table at the same time, resulting in a diluting of any influence that a 30 per cent shareholder would have," he said.
A top executive at another financial house, who spoke on condition of anonymity, said the new threshold would create "a lot of problems" and would end up reducing volume trades via the JSE for fear of hitting the mandatory takeover limit. He referenced National Commercial Bank's pending acquisition of Guardian Holding shares at 29.9 per cent along with the bank's over 30 per cent ownership of JMMB.
"Does it mean that if a trust company buys shares on behalf of clients that it will trigger the takeover," he said as one of many examples of technical issues to be worked out.
"If a company owns 29 and buys one more per cent that will trigger it, but what if a company already owns 32 per cent or even sells down to 31 per cent does that trigger the rule?"
Other market leaders tapped by Wednesday Business, were unaware of the FSC's consideration and so declined to comment.
In the past few years, a series of deals have been executed via the stock market, some of which would have meant mandatory takeover offers under the proposed 30-per cent rule, among them Proven Investment's acquisition of Mayberry Investments' stake in Access Financial Services and Jamaica Producers' purchase of shares in Kingston Wharves.
It's unclear whether the proposal would affect current shareholders with a plurality of shares above 30 per cent.
A promised response from the FSC on why it has placed the 30-per cent consideration on the table did not arrive up to press time. Industry sources say however that the regulator believes the current threshold allows one party to have too much undue influence over the direction of a listed company, and tends to crowd out the voice of minority shareholders.