The Cayman Islands is home to billions of dollars’ worth of mergers and acquisitions in a given year, but few have the potential to impact the local community as much as the impending sale of Cayman National Corporation Ltd. to the Republic Bank Trinidad and Tobago (Barbados) Ltd.
Much has transpired in the roughly four months since the potential acquisition was announced, including contentious shareholder meetings, public clashes between politicians, major personnel changes taking place at Cayman National, and the local bank’s stock price doubling throughout all of this.
In early August, the Republic Bank announced a “possible partial offer” to purchase Cayman National shares for US$6.25 apiece – a US$3 premium over what they were trading at the time.
At the time, Cayman National stressed that nothing definitive had been agreed to, and the bank advised shareholders to “TAKE NO ACTION in relation to the Possible Offer until further announcement is made and formal documentation is distributed.”
Nevertheless, the price of Cayman National stock almost immediately skyrocketed, and was trading at nearly US$5 by the end of August, with shareholders likely anticipating the Republic Bank’s offer.
The Republic Bank indeed made its offer in mid-September, aiming to purchase between 51 percent and 74.99 percent of the local bank.
The offer, which was to expire on Oct. 22, was made after the Trinidad-controlled entity agreed with Cayman National to certain conditions, including Republic Bank maintaining a presence in the Sister Islands, retaining the name and branding of Cayman National and its subsidiaries, and keeping the “majority” of Cayman National’s workforce and management team.
However, conducting the transaction was not as straightforward as having shareholders decide whether to sell their stock to Republic Bank. Shareholders also had to amend the bank’s articles of association to remove restrictions on any single entity owning more than 10 percent of Cayman National.
A shareholders meeting took place on Oct. 9 to vote on whether to remove those restrictions. Days before the meeting, opposition legislators made critical statements about the potential sale, calling for the “repayment” of a $20 million “investment” government made into a former Cayman National subsidiary in 2005.
The opposition leaders were referring to a settlement the United Democratic Party-led government reached in 2005 with then-Cayman National subsidiary Cayman General Insurance, which has since rebranded as Cayman First Insurance and no longer belongs to Cayman National.
At the time, Cayman General Insurance owed government an estimated $108 million insurance claim from damage arising from Hurricane Ivan. The claim was reduced to $70 million, with Cayman General Insurance paying government $50 million in cash and giving it a 24-percent stake in the company, valued at $20 million, in April 2005.
However, about seven months later, Cayman General Insurance sold 51 percent of its shares for only $8 million to another insurance company, the Sagicor Group.
A 2007 report by the Office of the Auditor General criticized the government’s deal with Cayman General, finding that the United Democratic Party administration did not get good value for its money. Based on the amount Sagicor paid to acquire 51 percent of Cayman General, government’s 24-percent stake in the insurer would only be valued at about $3.8 million – not $20 million – the auditor general found.
In an Oct. 5 statement, Opposition Leader Ezzard Miller blasted the deal, calling it a “short-sighted” decision by then-Leader of Government Business McKeeva Bush. Opposition MLA Chris Saunders also called for Cayman National to make sure Caymanians recoup their investment in Cayman General – even though the insurer is no longer a subsidiary of the bank.
It is not clear how government would recoup its investment in Cayman General. In 2007, Cayman National sold the remainder of its shares to Sagicor, and in 2010 Sagicor sold all of its shares to the Bahamas First Group, which subsequently rebranded the insurer as Cayman First Insurance. Government still owns shares in Cayman First Insurance.
Cayman National CEO Stuart Dack released a statement two days after the opposition’s, clarifying that “neither Cayman National, nor any of its shareholders have any liability to the Cayman Islands Government in relation to CGI or any claim arising out of Hurricane Ivan.”
Several hours after the opposition released its statement, Premier McLaughlin responded, accusing the opposition of deliberately spreading misinformation in an attempt to disrupt the potential transaction between Republic Bank and Cayman National shareholders.
The statement from the Premier’s Office added that regardless of whether the 2005 settlement with Cayman General made good business sense, it was a legally valid and binding settlement agreement. There is no outstanding loan and no money owed to the Cayman Islands Government by Cayman General, or its successor Cayman First Insurance or Cayman National Corporation, the Premier’s Office stated.
Speaker Bush also responded to the opposition’s statement. Like the premier, Bush accused the opposition of intentional obfuscation.
Bush closed his statement by thanking God that Miller was not leading the territory during the time of Hurricane Ivan.
“That would have been another disaster of gigantic proportions!!!” he wrote to the Cayman Compass.
Days after the public spat between politicians, more critical statements about the Cayman National sale were made at the shareholders meeting. There, a number of shareholders raised objections to having a Trinidadian organization take over Cayman’s only locally owned bank.
Businessman A.L. Thompson was one of the most vocal objectors.
“They want this company for a reason. It’s probably because of their image,” he said of Republic Bank and Trinidad. “But I don’t trust them, I don’t know who they are, and I don’t trust the whole country.”
Another shareholder said someone should only sell if he or she is a “greedy capitalist pig.”
In response to concerns about Republic Bank’s intentions for Cayman National, the bank’s CEO, Stuart Dack, said that the Trinidad bank has committed to largely maintain Cayman National as it is.
“All indications from Republic is that they very much want to leave things as they are at the moment. Cayman National is a very profitable business,” he said. “That’s why they want to leave staff as it is, that’s why they remain on all three islands, and leave the board majority Caymanian. They want to leave the culture of the business intact and to continue to do well, so they can get a return on their investment. That’s really their strategy.”
While some Caymanians may be upset at potentially losing Cayman’s only locally owned bank, that is the risk of running a profitable, publicly traded company, Dack said.
“We’ve become a victim of our own success,” he said.
Near the end of the debate, Thompson said he still had many questions about the potential sale, and made a motion to delay the vote until more information about Republic Bank and other issues was provided. Another shareholder seconded the motion, drawing applause from dozens of other investors in attendance.
However, “I’m afraid that’s not how things work,” said Cayman National Chairman Truman Bodden, explaining that there was already a motion on the floor that needed to be voted on.
Despite the vocal objections, the vote to remove the 10-percent ownership threshold passed in a landslide, with 79.7 percent of the voting shares in favor and 20.3 percent against. Five of the six directors voted in favor of the motion, with Clarence Flowers Jr. being the lone holdout.
About a week after the shareholder meeting, Republic Bank announced that it had received acceptances from shareholders to purchase the majority of Cayman National shares.
By the end of October, Republic Bank received acceptances to purchase 75.47 percent of Cayman National shares. Since the Trinidad-based bank was only offering to purchase between 51 percent and 74.99 percent of Cayman National, the Republic Bank’s purchases of shares will be determined in accordance with a formula laid out in its offer circular.
Acquiring majority ownership gives Republic Bank controlling powers over Cayman National, including the ability to pass ordinary and special resolutions at Cayman National meetings, which allows it to amend the bank’s articles of association.
Additionally, Republic Bank will have the ability to control the composition of the board of directors, subject to the condition that the majority of the board remains Caymanian. Republic Bank intends to appoint its managing director, Nigel Baptiste, and executive director Roopnarine Oumade Singh to the board, according to documents about the transaction.
The Republic Bank may also have the power to acquire minority shares now that it has received acceptances for more than two-thirds of Cayman National stock.
Concerns about the Republic Bank were expressed at another shareholder meeting on Nov. 7.
Another meeting had to be held because shareholders voted in October to remove a provision that prevented more than 10 percent of its shares from being issued to any entity, but there was another restriction in the articles stating that the bank’s directors shall decline to register any transfer of shares that result in an entity owning more than 10 percent of Cayman National. That restriction also needed to be removed, but was not voted on at the Oct. 9 meeting due to what Cayman National called “an administrative oversight.”
At the meeting, Dack assured shareholders who want to keep their stock that it is Cayman National’s understanding that the Republic Bank does not intend to acquire the minority shares.
“They want to maintain a local holding,” he said at the November meeting.
Also at the meeting, vocal objector Thompson said he objected to having Cayman National acquired by a foreign entity, but decided to sell his shares after the October meeting because “I don’t want to be in business with those people,” referring to Republic Bank.
The vote to remove the remaining restriction passed in an even larger landslide than the vote at the October meeting, with 90.5 percent of shares in favor of the motion.
Dack said the landslide decision is a signal that Caymanians support the terms of the sale to the Republic Bank, despite the vocal opposition. Dack added that Republic Bank has received acceptances from “well above” 75 percent of the local bank’s shares.
Another major shift at Cayman National occurred in mid-November when Ormond Williams was terminated from the local bank after serving as its president for 15 years. Dack reportedly said the termination had nothing to do with the pending acquisition.
As the acquisition entered its final stages – Dack said he hopes it will receive all necessary government and regulatory approvals by the end of the year – another report surfaced in late November that a “North American-led syndicated group” had offered to purchase the local bank. The report speculated that the “new offer” could lead to a “bidding war” for Cayman National. However, the local bank clarified that it had not received any offers that were in compliance with the rules of the Cayman Islands Stock Exchange.
“As at the time of publishing this announcement, the only offer that has been received in accordance with the [Stock Exchange] Code is the offer from Republic Bank Trinidad and Tobago (Barbados) Limited,” Cayman National stated, adding, “The Board of CNC continues to recommend that shareholders accept the Republic Offer, in the absence of a superior proposal.”
The tumultuous last four months were capped off on a more positive note for Cayman National last Thursday (Nov. 29), when it was announced that the local bank won the “Bank of the Year” for the territory by the Banker Magazine, which is a part of the Financial Times Group in London.
“The award is a reflection of the hard work, professionalism, and dedication of our staff. We are exceptionally proud that we have been awarded this accolade for the fifth time since 2005, especially during a year that has had its challenges,” Dack said of the award. “It is gratifying to be recognized in this way.”
Meanwhile, the Republic Bank’s parent company, Republic Financial Holdings Ltd., is acquiring other banks throughout the Caribbean.
Republic announced on Nov. 27 that it has entered into an agreement to acquire Scotiabank’s banking operations in Guyana, St. Maarten and seven Eastern Caribbean territories.
The acquisition is part of the financial group’s expansion strategy in the Caribbean, according to Chairman Ronald F. deC. Harford, who called the deal “another major milestone” for the Republic Group.
“As we grow and acquire significant positions in our existing markets, it is important that we continue to broaden our footprint, regionally and internationally,” he said. “This agreement, which is subject to all regulatory approvals, affords us the opportunity to reach more clients in the Eastern Caribbean and Guyana, two markets we are familiar with, and build new relationships in St. Maarten.”
Republic is paying US$123 million for the Scotiabank operations. This represents US$25 million for the total shareholding of Scotiabank Anguilla Limited and a premium of US$98 million over the net asset value of the operations in the other eight countries, the group said.
Republic Financial Holdings Ltd. has more than $10 billion in assets, owns banks in Guyana, Grenada, Suriname, St. Lucia, and Ghana – as well as having a class B bank in Cayman, Republic Bank (Cayman) Limited – and has more than 4,000 employees in Trinidad alone, its website states.
It was originally called Colonial Bank when it was formed in 1837 as Trinidad’s first commercial bank, according to the organization’s website.