The Ciboney waste

Ciboney has just released another disappointing set of results for the nine months to February this year, with cash funds erosion continuing with $7.8 million being burnt from a year ago, as the company reported a loss of $2.8 million in the third quarter and $6.2 million in the nine months period. The above numbers may not appear large, but when viewed against revenue and foreign exchange gains of only $770,000 for the year to February and cost of $7 million then a better picture of things is seen.
Minority shareholders in Ciboney should demand that the directors restore the lost value in the company since 2013. At the end of February 2013 Ciboney cash and investments was $31.6 million today it nowhere close, as cost and poor investment decisions eroded it, it never had to be that way. In 2013, the company got an offer to merge with KIW International and turn the combined entity into an investment company with a proposal to go to the market in 2016 to raise funds for expansion and modernization of the KIW complex, in light of what is seen as increased business to come from port activities in Kingston. The matter was discussed formally with the Cibnoey’s board, but there were no further response from them although they did indicate that they would need to advertise the company for sale to comply with government’s divestment requirements.
Rules on mergers and takeovers of the Jamaica Stock Exchange suggest that the directors may have personally breached them. Relevant extracts from the rules state “At no time after a bona fide offer has been communicated to the Board of an offeree company or after it has reasonably come within the contemplation of the Board of an offeree company that a bona fide offer is likely to be forthcoming, shall any action be taken by the Board of the offeree company in relation to the affairs of the company, without the approval in general meeting of the shareholders of the offeree company, which could effectively result in any bona fide offer being frustrated or in the shareholders of the offeree company being denied an opportunity to decide on its merits.”
“A Board, so approached, is entitled to be satisfied that the offeror company is, or will be, in a position to implement the offer in full. When any firm intention to make an offer is notified to a Board from a serious source (irrespective of whether the Board views the offer favourably or otherwise), shareholders must be informed without delay by press notice.”
A few questions flow, especially in light of the near wiping out of the company’s cash. Why was there no formal response and why weren’t minority shareholders advised of the proposal? Recently other entities have made offers to Ciboney but minority shareholders have not been advised of them. Did the Ciboney board seek independent outside advise on the offer?
The proposal made to Ciboney included the following, Ciboney which is listed on the JSE has been recording losses consistently for years (with accumulated losses of $417 million). KIW which was once listed has been making small profit for the last three years to 2012 and appears to recording an increase in its 2013 fiscal year. The combination of both entities could result in positive profit, helping to restore greater level of interest in the stock and boost the KIW shareholders’ value as well.
KIW is proposing that both entities consider merging with a plan to raising fresh capital in 2016. A crude calculation shows that the company is worth approximately $150m, of this amount Finsac shares are worth $90m and the minority $60m. The Finsac debt could therefore be satisfied by the transfer of the property to them and by cancelling the shares or transferring them to minority shareholders.
KIW has about 3 ½ acres of land, a few investments in unit trust and stocks. There are buildings on the property which are rented presently providing rental income.
The facilities which is located close to the port, stands to benefit from expected surge in port activities that are planned for with the expansion of both Kingston Wharves and the Port Authority’s port.
Currently, the company is debt free and has about $14 million in cash and investments. The property is on the books at a value of $55 million but would be valued up to $105m.
If the above proposal was implemented, the combined entities would be worth approximately $115 million with the KIW shareholders having the majority of the shares. It could generate approximately $20 million in revenue in year 1 and profits of around $10m, not taking into account the impact of any new capital that may be raised.
Since that proposal was sent, Ciboney has lost $24 million in value while KIW has increased theirs to by around $30 million not factoring any increased value for the property that may have accrued since 2013. So Ciboney’s minority shareholders have lost out on improving their value by $40 million and as high as $100 million in increased value.
The question is with cash fast disappearing what will be the future of Ciboney without any viable offer to purchase the land owned by the company?