Key Insurance board recommends minority shareholders accept Grace buy-out offer


Key Insurance board recommends minority shareholders accept Grace buy-out offer

Independent evaluation concludes offer price is fair

Observer Business Writer

Sunday, February 16, 2020

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Having carried out an independent assessment of GraceKennedy proposed $2.01 per share purchase of the remaining shares in Key Insurance Company, the board is recommending that minority shareholders accept the offer.

Last December, GraceKennedy acquired a 15 per cent interest in Key Insurance advising of its intention to make a cash offer to purchase 100 per cent of the issued share capital of Key at $2.01 per share. The offer opened on January 27, 2020, and will close tomorrow, February 17.

In a directors' circular posted last Friday (February 14) on the website of the Jamaica Stock Exchange, where both Gracekennedy and Key Insurance are listed, the board declared that it is recommending that minority shareholders accept the offer. The directors pointed out that this decision was a unanimous one of the board.

The recommendation to accept the offer was based on independent advice from the international auditing and management firm of Ernst & Young Services Limited (EYSL). EYSL was retained by the directors of Key Insurance to provide a fairness opinion on the offer.

This opinion was delivered to the board on January 28, 2020. In its report EYSL opined that the offer price is fair to the minority shareholders and was supported by the advice of the special committee of independent board members comprising Dennis Brown (committee chair), Kisha Anderson, Neville Henry, and Marc Ramsay.

The board declared that the offer price of $2.01 per share is a fair price from a financial point of view, as the EYSL opinion was arrived at based on valuation analysis applying several methodologies. The valuation analysis, as stated by EYSL showed that the offer price is above the net asset value, which is usually considered as the floor value.

According to EYSL, “The offer price of $2.01 reflects approximately a 10 per cent premium over the book value provided by management as of September 30, 2019. The offer price is within the range of values they considered fair under the market approach. The offer price is above the range of values as estimated by EYLS under our 'base case' scenario using the income approach.”

The analysis of EYLS showed that the value is highly sensitive to factors such as the claims ratio and the operating expense ratio. “The board has emphasised that minority stockholders seek independent financial advice before making their final decision to accept or reject the offer price by consulting your licensed securities dealer, licensed investment adviser, attorney-at-law, accountant, or other independent professional adviser.”

Key Insurance has been haemorrhaging financially over the past two years, with the company projecting a significant loss for 2019, which was preceded by a loss for the year ended 2018. This has resulted in a negative return on capital.

These losses are influenced by the continued severity of claims resulting in the need for increased capital infusion to ensure the maintenance of capital adequacy. Unless there is significant growth in revenue and improvement in the underwriting capacity, the book value of the company's shares will continue to erode.

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