Angostura Limited is a subsidiary of Trinidadian Stock Exchange Listed Angostura Holdings, itself a subsidiary of the CL Financial Group, whose ultimate owner, Lawrence Duprey, is one of the Caribbean's richest men. Only US$4.50 of the offer is in cash, whilst the rest of the US$10.65 offer (up to US$6.15) is a deferred payment at the option of the offeror subject to a prepayment discount calculated on a quarterly basis.

For example, only an additional US$4.62 would be due if the remaining payment was made on the next payment date after the offer on April 28, 2008, as opposed to the final payment date of January 28, 2011 when the full US$6.15 would be due. This is a discount rate of approximately 11 per cent on an annual basis. Is the price fair?

In a February 11, 2007 column I argued that Lascelles was a "buy rather than a hold, as one of the few 'growth' stocks in our local market, and as a value stock with severely undervalued assets". In the same article, I went on to argue that "The stock could ultimately be worth up to double its current price, depending on the value of its brand to a potential foreign buyer. " At the time Lascelles was trading at a price of J$275 per share, so that doubling its then current price would be J$550 per share. The offer is not for the 96 million outstanding ordinary shares of Lascelles Demercado, as it specifically excludes the ordinary and preference shares of Cayman company Cally Lilly and Snowdown, both jointly owned and controlled by Chairman George Ashenheim and Managing Director William McConnell.

Excluding the shares held by these companies means the offer is only for the remaining 86,484,020 ordinary shares, and 5,028 6 per cent preference shares. At one for one, the voting rights of Lascelles 10,000 outstanding 6 per cent preference shares and its 50,000 outstanding 15 per cent preference shares at a combined 60,000 are equal to the voting rights of the entire ordinary issued share capital of 96 million.

Calla Lilly is the corporate vehicle used by McConnell and Ashenheim to hold not only the 9,515,580 ordinary shares in Lascelles, but crucially 50,000 15 per cent preference shares. When Calla Lilly's shares are combined with the 4,972 Lascelles 6 per cent preference shares held by Snowdown, the shareholdings represent voting rights of 60,919 which at 50.76 per cent of the voting rights is voting control of Lascelles. This control block is to be transferred to Angostura once the final payment for the shares is made by Angostura for a nominal amount.

According to the Directors Circular issued by the board of Lascelles, "Cally Lilly has agreed. to bestow all economic benefits associated with the ordinary shareholding in Lascelles upon the remaining shareholders of the Company." According to the Circular, as a result, Angostura priced its bid at US$10.65 instead of US$9.60 per share, or a price of nearly 11 per cent higher than what it would have offered for the full 96 million ordinary shares.

According to the circular, excluding Calla Lilley (using the full 96 million shares) the offer would have been for US$4.06 cash, and US$5.54 deferred. If we discount the deferred payment to what it would be worth now on the same basis as the offer including Calla Lilly, the combined offer would be worth US$8.11, or almost exactly Jamaican $550 at the Jamaican exchange rate to the US dollar in February. This is also approximately 20 times Lascelles $27.76 earnings per share for the year ended September 30, 2007, at the higher end of valuations for our local stock market.

Directors' valuation A review of the directors circular sheds significant light on the value of Lascelles. Their insurance subsidiary Globe values the insurable fixed assets of the Lascelles group at US$179,558,685 million on a replacement basis.

The group's real estate was valued on an open market comparative sales method basis, based on actual sales prices of recent sold similar properties located in the same general area, at US$38,472,699 million. The price of the real estate varied from US$2,466,091 per acre for prime commercial lands in New Kingston, to US$1,000 and US$190.68 per acre sugar land and mountainous watershed protection land respectively. This compares very favourably with the book value of the land (unimproved) of J$179,634 million, or US$2,517,374 million.

The directors estimate the aggregate current value of the groups fixed assets at US$198,679,492 million. Adding in the other assets of the group, including cash and liquid assets, of US$386,002,786 and subtracting liabilities of US$117,583,036 million puts net asset value of Lascelles at $467,099,242 million, or US$5.40 per share, based on the lower number of shares used for the offer. This is a liquidation value, however, and as the directors pointed out, not appropriate for a strong company such as Lascelles.

Directors reliance on outside valuation Lascelles directors placed greater reliance on the independent enterprise valuation of investment company Greystone, which valued the company as a going concern in four separate ways: comparable companies (market prices), precedent transactions (comparable buyouts), discounted cash flow and leveraged buy outs.

Whilst the valuation for comparable conglomerates was lower than the estimated liquidation value (probably reflecting the depressed local market), the directors noted that "the offer price as proposed by Angostura exceeds the implied enterprise value range per ordinary share as derived from all the various methodologies".

In a nutshell, this means Angostura's price per Lascelles share exceeded the top end of the range of prices for comparable global spirits companies of $6.72, as well as the top end of the precedent transaction basis, eg a buyout of US$10.57. This leads one to the conclusion that whatever valuation basis you use, Angostura is offering a very good price for Lascelles, which is what one would expect for a company with such a strong brand which is controlled by such experienced businessmen as Mr. Ashenheim and Mr. McConnell.