Hendrickson's new bid to gain full control of Pegasus

The Kevin Hendrickson-led Quivin Holdings, having acquired a block of shares just over a month ago which took its ownership to more than 90 per cent, has now offered to buy out all the remaining shares in The Jamaica Pegasus hotel in an attempt to gain full ownership of the New Kingston-based outfit.

Directors of The Pegasus hotel on Tuesday recommended that small shareholders sell all their holdings to the Quivin group, which in October paid $830 million for its latest block of shares.

Those shareholders have until 3 p.m. on December 15 to accept or reject the offer.

Small shareholders hold 6.6 per cent, or about some 7.8 million shares in the company. The main reason for the directors' recommendation included the premium price of the offer, which equals the price sold to larger shareholders.

"The directors recommend that the offer price of $22.50 per stock unit be accepted by stockholders," stated the directors' circular, released on Tuesday in a notice to shareholders.

"The offer price represents a 52-week high for the stock and equals the highest trading price in the history of the stock, so far as your directors can ascertain," said the board, reviewing records going back to 1997.

The directors reasoned that the company was on an "irrevocable path to being delisted" as it no longer complies with the listing requirements of the Jamaica Stock Exchange (JSE).

"Shareholders who do not accept the offer should note that once the company is delisted it will be subject to the rules and procedures applicable to a typical non-listed company," said the circular, referring to private rules which included provisions for the approval of directors to trade shares and for such transactions to be subject to transfer taxes.

The October acquisition of shares from a group of investors, including hotelier John Issa, increased Quivin's shareholdings in the Pegasus hotel by one-third to 93.49 per cent, according to the directors' circular.

Issa represented minority shareholders who rejected a previous offer by Hendrickson to buy the shares at J$13.14, the same price at which the state-owned Urban Development Corporation sold its 59.81 per cent stake.

Along with the sale of his 9.2 million shares in the Pegasus hotel, Issa said in October that the group he represented, members of which also sold their shares at the premium price, included Harry Maragh, Ray Chang, Joseph Linkee-Chow, and three unnamed foreign investors in an offshore company called Middle East Ventures Limited, as well as Capital Finance Limited, and Pelican Securities Limited.

"The offer price also equals the price paid by Quivin Holdings Limited to acquire 36.9 million Pegasus shares on October 18, from a group of private shareholders, including Mr John Issa, after a period of negotiations," stated the notice to shareholders.

Stock market rules mandate that no single shareholder can own more than 80 per cent of a listed company.

On November 29, 2010, Quivin Holdings paid US$11 million (J$940.5 million or J$13.14 per share) for 59.81 per cent of the Pegasus, triggering a mandatory offer to minority shareholders at a similar price per share.

RECORDED LOSS

The hotel recorded a $42 million loss for its March 2011 financial year, which reversed four consecutive years of profit for the group, according to financials published in the notice to shareholders.

Quivin Holdings had committed to invest in plant upgrade and other capital expenditure over three years, and to purchase all furniture, fixtures and fittings at book value, estimated at J$302 million. Quivin is also prepared to assume all risks and costs relating to the hotel's operations going forward - including maintenance, insurance and property taxes, its new takeover offer to minority partners said.

Hendrickson got the approval of the Pegasus Hotels of Jamaica board on March 28 to lease the hotel to Surrey Hotel Management Limited, a new company he created for the purpose. Surrey took over management of the hotel on October 28.

Part of the provisions of the agreement calls for Surrey to pay rent at US$1 million for the first year of the lease, US$1.2 million in the second year, US$1.4 million in year three, and thereafter the management fee would increase at the rate of US inflation, capped at three per cent.

Consequently, in the first three years, the lease is worth US$3.6 million, or about J$308 million at the spot exchange rate. In 25 years, the lease agreement could earn US$47 million to US$47.6 million at two to three per cent inflation. The Hendrickson family operates a number of hotels and resorts in Kingston, as well as the tourist mecca of Ocho Rios in St Ann, Negril in Westmoreland and Montego Bay, St James.

steven.jackson@gleanerjm.com