David Noel, senior vice-president and legal counsel, BNS Jamaica. - Winston Sill/Freelance Photographer

Keith Collister, Business Writer

Scotiabank Jamaica shareholders will pronounce today on a plan to create a new structure for the commercial bank under a scheme to establish a new holding company that will, in effect, become BNSJ's parent.

Under a multistep transaction proposed by the banking group, the existing 2,927,232,000 ordinary shares in BNSJ will be cancelled and simultaneously a similar number of ordinary shares will be issued to Scotia Group, the new holding company.

Scotia Group will then issue the equivalent number of shares on a one for one basis to BNSJ shareholders, as well as one additional preference share for every 30 ordinary shares held out of a $100 million bonus pool.

At an extraordinary general meeting to be held at the Jamaica Pegasus, in New Kingston, shareholders will be asked to approve the new Scheme of Arrangement.

If the Scotiabank board secures sufficient votes to ratify its decision, it will then seek the approval of the Supreme Court.

This scheme of arrangement was a solution to the problem created by the acquisition of 68.54 per cent of DB&G, when BNSJ was limited by regulatory constraints on its capital base to 15.8 per cent of DB&G.

The balance of 52.74 per cent of DB&G is held by its parent BNS Canada.

At BNS Jamaica's press briefing last week, investors were advised that the process would also involve BNS Canada acquiring further shares in the new Scotiagroup for the shares in DB&G. Since then, analysts and minority shareholders have questioned the plan, saying there had been no notice to shareholders.

However, addressing the issue of disclosure, BNS' senior legal counsel David Noel said page eight of the DB&G bid circular did give such notice, but admitted the information was not circulated directly to BNS shareholders.

Acquiring direct ownership

The circular said, in part: "Alternatively, in lieu of BNS and BNSJ acquiring direct ownership interest in the DB&G shares acquired, such DB&G shares may be held in a joint pool in the name of BNSJ, or, if BNS and BNSJ so decide, in a new company called NEWCO."

Market analysts and minority shareholders were also concerned that BNS Canada's 52.74 per cent of DB&G, acquired at $21.08 per share, was to be sold not on the basis of a 'fair vaulation' of the stock price but at $19.76, the six month average price of BNSJ prior to the takeover bid.

Investors fear the deal - which will increase BNS Canada's stake in Scotia Group - will also dilute their holdings.

A major shareholder in BNSJ, who requested anaonymity, argues that BNS has effectively structured a rights issue for itself without allowing the minority to participate, and that it should either provide a fair value opinion of its share price, or allow minority shareholders to tender proportionately for new shares at $19.76.

Noel argues, however, that the joint bid agreement was negotiated at the same time, and that BNS Jamaica's board had fixed the price at $21.08 at which the DB&G shares would be transferred precisely to protect the minority, and that getting a further independent valuation rather than using the market price would also be an additional cost to shareholders.

Responding to the question of why the share transaction was not being done on a comparable time basis, or whether it was fair to use a six-month trailing price for BNS and the bid price for DB&G rather than say the six-month comparable trailing price for DB&G, Noel argued that "in order to induce existing shareholders of DB&G to sell their shares, BNS Canada and BNSJ had to offer a premium in the joint bid."

"This premium has been paid to the DB&G shareholders who sold the shares, and the resulting acquisition will benefit all shareholders in BNSJ. It would be unreasonable to ask BNS Canada to pay $21.08 for shares in DB&G and at the same time enter into an agreement to release the DB&G shares to BNS at a lower price," he said.

Noel said further that "a lot of analysts are already valuing BNSJ and DB&G as though the transaction has already occurred", and that getting a "fair value" price for BNS after the bid would include the value created by the deal.

He acknowledged that minority shareholdings would be diluted but said it would only be by about one per cent.

keithcollister@cwjamaica.com