Key directors sign off on GK offer
Published:Friday | February 21, 2020 | 12:13 AMSteven Jackson - Senior Business Reporter
Key Insurance Company directors voted to accept the takeover offer from the GraceKennedy conglomerate to acquire majority stake in the entity, albeit at a steep discount on the stock’s trading price.
The GK offer, priced at $2.01 per share, was set to close on Monday, February 17, but was extended to March 2 to allow time for Key’s board to circulate the directors’ assessment of the offer to shareholders.
“The directors of Key requested an extension as there was a delay with the issuance of the Directors’ circular. We agreed, as we wanted the shareholders to have enough time to review,” said GK Group CEO Don Wehby.
GK already owns 15 per cent of Key, which it acquired from legacy shareholders of the company last December 3. That acquisition, which was also executed at $2.01 per share, came in the midst of Key Insurance’s search for fresh capital to buttress the weakened company under a turnaround plan agreed with its regulator.
The acquisition then was at a 37 per cent discount on Key’s trading price of $3.20 before and throughout December.
The takeover offer that followed on January 20 came at a point when the Key stock had climbed in value and was trading at or around $3.80. Relative to that price, the offer discounted the stock by around 47 per cent.
GraceKennedy is aiming to increase its stake in Key to no more than 80 per cent through the current offer, a target that’s important not to breach if the company is to remain listed.
The conglomerate already owns and operates another general insurance company, but Wehby told the Financial Gleaner that GK intends to maintain Key as a separate brand.
The market currently values Key at $1.12 billion; however, the GK offer discounts its value to $740 million.
The offer is likely to succeed, nonetheless, as the conglomerate has a lock-up agreement with the top three owners of the company to acquire their remaining holdings, amounting to 50.23 per cent.
Essentially, GK needs less than 15 per cent more acceptances from minority owners to hit its 80 per cent ownership target. In the event the level of acceptances exceeds GK’s intended threshold, the legacy shareholders would cut back on their acceptances, that is, retain a portion of their holdings, to ensure the target is maintained.
The Key directors engaged the services of auditing firm Ernst & Young Services Limited to evaluate the GK offer.
“In considering the fairness of the offer price made to the minority shareholders, the advisers conducted valuation analysis using different methodologies, including income, market and asset approaches,” Director Dennis Brown told the Financial Gleaner.
“In the income approach, they considered the income earning capacity and cash flow outcomes, noting the sensitivity to claims and expenses,” Brown said.
Key Insurance CEO Sandra Masterton declined to comment on the price, saying she was a selling party and not on the specific committee evaluating its fairness. Masterton, Chairman Natalia Gobin-Gunter and director Karla Abrahams are the top shareholders in the company. They each sold five per cent of their holdings to GK in December.
Brown said the committee also considered other methods of evaluating the offer, including the price of the stock.
But: “Trading in Key’s shares has been relatively thin,” he said. “ … In a thinly traded situation, looking at the actual dollar price is more meaningful when other factors are taken into consideration. Market capitalisation consideration is a better indicator.”
Key listed on the stock market in 2016. It made a loss that year, returned to profit in 2017, then regressed in 2018. The company’s 2019 results are pending.