JMMB, CCFG reach J$4b deal
Published:Friday | August 12, 2011 | 12:00 AM
Steven Jackson, Business Reporter
A Jamaica Money Market Brokers Limited (JMMB) and Capital and Credit Financial Group (CCFG) combination would create a new powerhouse of 180,000 clients and J$180 billion of assets under management, and give the Duncan family access to a coveted banking licence, if the acquisition deal passes regulatory scrutiny.
JMMB has proposed a J$4.22-billion takeover of CCFG in a combination cash and shares deal that immediately put a more than 26 per cent premium on the Capital and Credit shares - or J$881 million above the stock's market cap - at disclosure of the transaction on Wednesday.
JMMB said Wednesday it would pay up to J$4.55 per share for CCFG, or 95 cents more than Wednesday's J$3.60 price.
JMMB wants total control of the 927.566 million issued share capital of CCFG, according to a joint shareholders' release on Wednesday. The Duncan family-run brokerage has edged its bets on a successful offer by securing agreement, it said, from owners of more than 50 per cent of the ordinary share capital of CCFG.
The sale would gross some J$1.8 billion and J$580 million for major shareholders and directors Ryland Campbell and Andrew Cocking, respectively, based on disclosures of their shareholdings in CCFG in the company's 2010 annual report.
JMMB will finance 70 per cent of the deal with J$2.95 billion in cash and the remainder via a share swap to CCFG shareholders.
"This acquisition will be financed from JMMB's group capital. No external financing is required," said JMMB in response to Financial Gleaner queries Thursday.
Shareholders to benefit
JMMB's cash and equivalents totalled $3.1 billion for its latest June quarter, with $11 billion in equity.
The money market firm believes that shareholders in both companies would benefit from stronger financial performance, increased shareholder value and efficiencies through the consolidation of services.
Regulatory approval will be sought in September and the parties have set a yearend timetable to finalise the transaction.
"If successfully concluded, this transaction would allow us to capitalise on the strengths of both entities to provide a wider array of services to our valued clients. Our conversations have been really open and have proceeded in a spirit of collaboration, while respecting the necessarily confidential nature of those conversations," said Keith Duncan, CEO of the JMMB Group in a statement to shareholders.
Ryland Campbell, chairman, group president and CEO of CCFG, stated: "The board of CCFG will give very serious consideration to JMMB's potential offer, if and when received ... . We have had very positive discussions with JMMB's team so far and we look forward to continuing mutually respectful interactions."
John Jackson, well-known investor, publisher and accountant, agreed that shareholders would benefit from the deal. CCFG shareholders, he said, should benefit from a short-term "stock price appreciation", and in the long term from growth in JMMB shares.
CCFG shares were up nine cents to J$3.69 at market close Thursday; JMMB climbed 71 cents to J$9.01.
JMMB shareholders would benefit from the acquisition of a "bank which they badly needed", in addition to a unit trust "which they can leverage with their large pool of investors," Jackson said.
The transaction will give JMMB control of Capital & Credit Merchant Bank Limited, a subsidiary of CCFG and a licensee under the Financial Institutions Act and would, therefore, be subject to the approval of the Bank of Jamaica (BOJ).
Favourable conclusion
JMMB has been turned down by the central bank for a commercial banking licence in the past, but had indicated its intention to access the market via another route.
"The completed application will be submitted to the BOJ by the end of September and it is hoped that a favourable conclusion will be achieved by yearend," said JMMB Wednesday.
The money market firm reported first-quarter profit of J$951 million at June 2011, a fivefold improvement over year-earlier levels. Interest income underperformed in the quarter - falling from J$2.4 billion to J$2.2 billion - but JMMB overcame the J$200-million slide with massive savings of half-billion dollars on the cost of writing business, and a near fivefold increase in gains on securities trading.
CCFG's March first-quarter pre-text profit increased 18 per cent to J$134 million compared with year-earlier levels. It has some J$6.6 billion in shareholder equity.
One source previously told the Financial Gleaner that JMMB was wary of Capital and Credit's non-performing loan portfolio, which was more than J$1 billion at the end of March. However, JMMB was said to have given heavier weighting to the banking licence, added the source.
Both JMMB and CCFG have played a major role in the development of the regional financial sector, through investment and diversification in Jamaica and Trinidad and Tobago. In addition, JMMB is listed on the Barbados Stock Exchange and conducts business in the Dominican Republic. JMMB is the second financial institution in talks with CCFG. In June, Ryland Campbell, indicated that CCFG had been in talks with Pan Caribbean Financial Services, but failed to reach a deal.