By NEIL HARTNELL
Tribune Business Editor
A Canadian utility has branded its near-$35 million offer to buy-out all Bahamian shareholders and acquire 100 per cent of Grand Bahama Power Company as “a win-win for all”.
Emera, responding to Tribune Business’s questions, said the proposal was tantamount to a ‘vote of confidence’ in Grand Bahama’s troubled economy despite a 10 per cent year-over-year sales decline as a result of Hurricane Matthew.
It added that its offer, which could potentially end Bahamian ownership in the utility monopoly, was designed to “streamline” GB Power’s corporate structure while also giving local investors options that for generating increased investment value.
Emera is offering the Bahamian minority investors in ICD Utilities, the BISX-listed holding vehicle for a 50 per cent equity interest in GB Power, three ‘exit route’ options. They can accept a price of $8.85 per share for their holdings, representing a 26.25 per cent premium to the current $7.01 BISX price, and 33 per cent premium to the “24-month volume-weighted average price ICD Utilities.
Alternatively, Bahamian shareholders can trade their ICD Utilities shares for 0.913 Emera depository receipts, enabling them to switch their narrowly-focused investment in GB Power for an international stock with worldwide utility investments.
By taking this option, where four depository receipts will equal one Emera share, Bahamian investors will have exposure to the potential upside generated by the Canadian utility’s spread of assets in Canada and the Caribbean.
The third and final choice is for the Bahamian investors, who hold a combined 39.26 per cent of ICD Utilities (translating into 19.63 per cent of GB Power), to take a combination of cash and depository receipts (DRs). Those who fail to specify their choice by November 27, 2017, will also be deemed to have chosen this option.
“We believe this is a win-win for all involved,” Emera told Tribune Business of the deal, which was “unanimously recommended” by ICD Utilities’ ‘independent’ directors.
“Emera’s proposal to increase its ownership stake from 60 per cent to 100 per cent of ICD Utilities would help streamline the company’s ownership structure. At the same time, it would provide liquidity and value for current ICD Utilities shareholders. And it goes without saying that by way of this action, Emera also believes that the growth prospects for Grand Bahama are promising.”
The Canadian utility added that its offer, should it be accepted, would enable it “to meet its objective of increasing investment in the region and streamlining the ownership structure of its companies here”.
Explaining why the Depository Receipt (DR) choice has been offered, it said: “Shareholders who choose the DR option would benefit through the unique opportunity to have an interest in Emera, which is a much larger and diversified company than ICD Utilities.
“Emera’s shares trade on the Toronto Stock Exchange, and provide shareholders several benefits over ICD Utilities’ shares, such as improved liquidity, a higher historical dividend yield and a stronger historical share performance. These benefits are in keeping with Emera’s strong focus on value creation for its shareholders.”
Should all Bahamian shareholders accept the cash option, the payout value will total $34.746 million. Emera said this valued the whole of ICD Utilities at $88.5 million, meaning that 100 per cent of GB Power – a company with Cdn$400 million in assets – is worth $177 million in its eyes.
A senior capital markets source, speaking on condition of anonymity, told Tribune Business that based on the terms presented to-date the Emera offer was “a good deal” for ICD Utilities’ Bahamian shareholders.
“Would you rather hold an international share? Is there more upside in an Emera share than ICD Utilities and GB Power?” they asked. “If you’re swapping to a more global security, is that more beneficial for you?
“The upside outside Freeport may be larger. Would you rather buy Emera shares, or take the cash or something else? If it was me, I’d swap it for Emera shares and move on. To me, I think it’s a good deal.”
The offer, if it proceeds, will effectively initiate a ‘corporate restructuring’ of GB Power’s ownership structure. Once the Emera transaction goes through, ICD Utilities will cease to exist, and be de-listed from BISX- meaning that its accounts, and those of GB Power – will no longer have to be published in such detail.
That will reduce the costs incurred by Emera and GB Power from having a public company in the Bahamas, but also lowers the amount of scrutiny that the Bahamian public can apply to the utility’s performance and actions.
ICD Utilities’ shares will be replaced by Bahamian Depository Receipts (BDR) that will be listed on BISX. Initially, ICD Utilities will be merged into IUL Ltd, an Emera affiliate, with the former’s shareholders given preference shares in the latter. These will then be exchanged for either cash, the BDRs or a combination of the two.
These BDRs, a derivative of Emera shares, are identical to those held by Bahamian investors in Consolidated Water, the reverse osmosis plan operator. They will also fulfill exactly the same function as the BDRs issued by Kerzner International, the former Atlantis owner, prior to the company de-listing and going private.
Given the Bahamas’ economic circumstances, and especially Grand Bahama’s current plight, the suspicion remains that most ICD Utilities shareholders – especially retail investors – will elect to take the cash payout, giving them liquidity they can apply to bills and debts.
The offer, which requires approval by a majority of non-Emera shareholders at ICD Utilities’ annual and special meeting on November 8, 2017, will potentially end Bahamian ownership in GB Power if all accept the cash payout.
Emera acknowledged this “could be sensitive” from a Bahamian nationalist standpoint, but reiterated to Tribune Business: “We believe this is a win-win for all involved.
“While to some it may be viewed as a reduction of ownership in GB Power directly, this transaction creates an opportunity for Bahamians to have a greater share of ownership in GB Power’s parent company, Emera, and in so doing will continue to have an indirect investment in GB Power.”
Emera added that it had delivered on promises of improved service to GB Power customers, with generation plant availability over 98 per cent for 2017 year-to-date.
“Over the past five years, Emera has improved service to customers through a three-point plan; to first improve reliability, then stabilise power rates and, finally, to introduce renewables to our energy mix,” it told Tribune Business.
“That plan included the construction of a new generation facility that has now been operational for several years, and generating plant availability in 2017 is over 98 per cent year-to-date. We are now working to strengthen our transmission and distribution infrastructure to improve reliability and make it more resistant to storms.”
Hurricane Matthew’s impact on Grand Bahama’s economy and society continues to impact GB Power’s performance, with Emera revealing: “Sales are down roughly 10 per cent year-over-year, as the island continues to recover from the aftermath of Hurricane Matthew.
“Despite this, Emera has confidence in the economy rebounding, which is part of the reason this offer is being made to the ICD Utilities shareholders.”
The Canadian utility revealed it was working with General Electric (GE) “ to assess renewable options for Grand Bahama – options that can assist with stabilising rates, can assist with increasing grid resiliency, and do not result in grid instability”.
It added: “Investing in renewable energy is a core strategic objective for Emera, and we are exploring options to act on this strategy in Grand Bahama.”
Some observers will also argue that the buy-out culminates the shedding by the Grand Bahama Port Authority (GBPA) of one of its key Hawksbill Creek Agreement responsibilities, namely the “sole right to construct and operate utilities” such as electricity within the Port area.
This process began when the late Edward St George and Sir Jack Hayward transferred the GBPA’s productive assets from the Port Authority into Port Group Ltd, and began treating them as private, profit-making assets.
This led to ICD Utilities’ creation, and the sale of Sir Jack’s interest to Bahamian investors, together with the partnership with Southern Energy (Mirant). Southern eventually sold its GB Power interest, at the time just over a 50 per cent stake, to Marubeni.
Emera, though, has played ‘the long game’ in relation to GB Power. It entered the market by acquiring Lady Henrietta St George’s 50 per cent interest in ICD Utilities, with the deal’s proceeds used to finance the St George estate’s then-litigation with the Haywards over their GBPA interest.
It then acquired the Marubeni interest under the last Ingraham administration, making it GB Power’s majority shareholder. The only other remaining equity interest remains the Bahamian minority shareholders in ICD Utilities.
Emera appears keen to reduce, if not remove, the Bahamian interest as part of a strategy to deepen its investment in the Caribbean.
Yet transactions such as its ICD Utilities offer are commonplace in more developed countries’ capital markets, where controlling/majority shareholders move to buy-out minority interests all the time – and are sometimes compelled by law and regulations to do so.
The Emera/ICD Utilities deal follows the same practices, with all Emera-connected directors on the BISX-listed entity’s Board recusing themselves from deliberations on the deal.
The ‘independent’, non-executive directors form a committee to discuss the transaction with their own lawyers and financial advisers, before deciding to recommend whether minority investors accept the offer.
The ‘independent’ directors in ICD Utilities case will be former BEC executive chairman, Michael Moss; attorneys Robert Adams and Brenford Christie; and Pharmachem chief executive, Randy Thompson.
Emera said the Government has already approved the ICD Utilities buy-out through the Bahamas Investment Authority (BIA), while the Central Bank has also approved it in principle for exchange control purposes. The Securities Commission has also issued a letter of ‘non-objection’.
The Canadian utility is hoping to close the deal this September. It also hinted that the ‘fairness’ opinion on the buy-out, from the KPMG accounting firm, which backed the transaction will be made available to Bahamian shareholders for their scrutiny.
GB Power’s management and operations, said Emera, will not be impacted by the deal.
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