Republic set to acquire Bank of Commerce

...but management still has to win over its largest single shareholder

One week after what it terms a temporary setback in Court against one of its major shareholders on January 10, Republic Bank was in the spotlight again as it announced the next step in its quest to take over the operations of the Bank of Commerce, Trinidad and Tobago Limited.

Republic announced that it had bought two private holding companies of Bank of Commerce shares. The holding companies are not listed on the local Stock Exchange.

Republic also bought more than a million shares from the Bank of Commerce Pension Fund during the first two weeks of this year for more than TT$7.6 million.

The two holding companies purchased by Republic were VHS Limited and Agrippa Investments. VHS, previously owned by Bank of Commerce Chairman, Dr Rupert Indar, holds 6.9 percent of Commerce. The other company, Agrippa, previously owned by Barbados- based businessman, Kyffin Simpson, has a further 18.5 percent stake.

Together both firms represent about 25 percent of the issued shares of Commerce. Republic is now aggressively pursuing the remaining shares in Commerce and is offering to match the January trading price of $6.93 in cash for each outstanding share.

With the acquisition of VHS Limited and Agrippa Investments Republic's percentage was increased to 51.14. Additional share purchases up to February 14 has pushed this figure to 53.34 percent.

The rules governing the stock exchange requires that Republic makes a bid for the remaining shares.

The Merger Plan was approved by the Stock Exchange Takeover and Mergers Panel on February 15. The Bank of Commerce Board also recommends that shareholders accept the cash offer of $6.93 per share.

Republic will officially make its offer for the remaining shares by the end of February says Lloyd Samaroo, Republic Bank's executive director.

The notice of offer was published in the regional press on February 22. The Offer documents were also despatched on that day.

"The offer will remain open for an intial 28 days, expiring on March 21," says Samaroo.

The Clico Factor

If Republic gets a 90 percent stake in Commerce, it will be able to carry out a full merger of the two banks. This plan was blocked two years ago by Colonial Life Insurance Company (Clico), a large insurance, real estate and investment firm controlling 37 percent of Republic Bank's shares.

Clico's approval will again be needed if the merger is to become a reality.

However, if a deal is reached and the merger gets Clico's approval, the resulting financial institution may be one of the largest in the region with assets of nearly US$1.8 (TT$10) billion.

Acquiring Bank of Commerce will make Republic Bank large enough and more able to compete internationally," says Samaroo. "It will also increase our access to international financial connections in the global marketplace.

In accordance with a Memorandum of Understanding with CIBC, Republic Bank has already acquired 20 percent of the shareholding in CIBC West Indies Holdings. CIBC's assets are now larger than the existing assets of Republic Bank.

The agreement also requires CIBC to increase its shareholding in Republic Bank from its present 7.5 percent to 20 percent comprising 10 percent voting rights and 10 percent non-voting rights.

However, despite the attractiveness of the agreement to both parties, nothing happens unless Clico goes along with the plan.

Legal Battle

While Republic is actively pursuing its smaller competitor in Trinidad, it is fighting a take-over battle of its own from Clico.

Since Clico blocked Republic's initial take- over attempt of Commerce two years ago, the Bank has been locked in a legal battle to limit the investment firm's access to its Board.

There are a number of court matters outstanding between the two financial institutions. These include a breach of trust action filed by Republic. As trustees of the T&TEC Pension Plan which covers 2,000 employees of T&TEC, the Bank felt it was inappropriate for the fund administrators to sell part of its portfolio without informing the trustee in advance.

Republic has already filed an Appeal to the recent Court Ruling by Justice Lucky to lift the injunctions against Clico and another of its subsidiaries, Viveka, thus allowing them to purchase more shares in the Bank.

The injunction prevented Clico from purchasing more shares until the hearing of the substantive breach of trust action in the High Court, is determined.

It must be clearly understood that this action by Republic Bank is required purely under its duties as trustees of the T&TEC Pension Plan. The other issue relates to Clico being a fit and proper (shareholder of the Bank) under the Financial Institutions Act, says Samaroo.

The Court will determine whether Clico should be allowed to hold in excess of 25 percent of the voting shares in the Bank.

This is also before the Tax Appeal Board and will also be the subject of Judicial Review proceedings in the Trinidad and Tobago High Court.

Clico has challenged the constitutionality of the fit and proper provisions of the financial Institutions Act. This is also pending hearing in the High Court.

The merger plan with respect to Bank of Commerce is a business matter and ought not to be affected by the varying Court motions pending before the Courts, Samaroo adds.

New Agreement

"Discussions continue with Clico regarding its relationship with Republic Bank and it is hoped that Clico will offer its shares in Bank of Commerce under the terms and conditions of the Offer by Republic Bank.

The price of $6.93 offered by the Bank is an excellent one, particularly bearing in mind the future capital requirements that will be necessary when Bank of Commerce's operations become part of the expanded Republic Bank Group.

If Republic achieves a 90 percent stake in Commerce, it would be able to carry out a full merger of the two banks. But that would require the agreement of the remaining large shareholders, which are Clico and its subsidiary, Roytrin Securities. Roytrin's 20.9 percent stake in Commerce is worth $59 million at the $6.93 offer price.

New Confidence

Republic Bank may feel confident about its ability to swing a deal this time around as a cash payment for the outstanding shares may dampen Clico's concerns about its stocks being diluted by a share swap merger deal.

However, as a major shareholder, Clico may be concerned about Republic's ability to handle such large capital outlays, even though it declared profits of more than TT$150 million in 1995.

Republic's planned purchase of Bank of Commerce is expected to be financed from its cash reserves that it has accumulated over the past few fiscal years, as well as some other quasi- liquid financial resources.

Employee Concerns

But what about the employees? After the merger of three other local banks two years ago, nearly 200 employees were taken off the payroll.

During that merger, the unions were gearing up for a fight with management about the planned voluntary separation of employment plan (VSEP), says Bank and General Workers' Trade Union's negotiator, Christopher Jackson-Smith. "VSEP effectively make employees fire themselves," he adds.

Fortunately, the stand-off with management proved to be unnecessary, he says, as the VSEP was over subscribed and no employee was forced off the job.

The Bank offered the voluntary separation plan anticipating that approximately 80 persons would apply. Surprisingly, more than 180 persons responded. This was a relief for the union and the workers," says Jackson-Smith.

Even though a large number of persons opted for VSEP, this does not mean the banks were over-staffed as the work still needed to be done. Getting rid of employees doesn't mean they are not needed.

However, employees of both Republic and Commerce will still be concerned about their future. As a group, Bank of Commerce's employees have been slow to join the union, and this is reflected in the fact that their salaries are lower than their counterparts' in the other banks.

"In this regard we can see the merger as a positive step for the employees, as they will get a chance to be part of the bargaining unit and their salaries will have to be adjusted upward to meet those of their new colleagues.

"The whole financial system seems to be gearing up for international competition, as the region's financial markets become more and more open. "Even the Trinidad and Tobago Central Bank is offering their employees VSEP and 171 employees are expected to leave over the next few months, says Jackson-Smith.

A disturbing trend we have also noticed is that the worker would take up the offer for VSEP on Friday afternoon, but they would walk into the bank as a contract worker on the next Monday morning with a lower salary, fewer benefits and no union representation. "This seems to be the new trend being used by companies to reduce their wage bill. "If it had occured in isolated instances it may have been all right, but it is becoming so widespread that it is getting the attention of the trade union movement."