Derrimon seeks $4 billion from APO, if upsized
Proceeds to reduce debt and exploit two possible US acquisitions
Distribution company Derrimon trading is seeking to raise up to $4 billion from its additional public offering (APO) of shares, which goes on the market on January 6, 2021.
The APO, which closes three weeks later on January 26, is for nearly one and a half billion shares with the option to upsize the offer by an additional 301.3 million new ordinary shares.
This would put the maximum expectation from the APO at $4 billion.
Derrimon, based on Marcus Garvey Drive in Kingston, is the second company in less than a week to announce an APO; the other being Sygnus Credit Investments, which is aiming to raise upwards of $3.3 billion from its APO, which opens this Friday, December 18 and closes one week later on December 23.
Derrimon’s APO has been priced, offering a discount to existing shareholders and staff members, who will be charged $2.20 per share. All others such as key investors; clients of Barita Investments, which is the lead broker and arranger of the APO and the general public will pay $2.40 per share.
In his forward message accompanying the prospectus, which was made public yesterday, Derrimon’s Chairman and Chief Executive Officer
Derrick Cotterell disclosed that a portion of the proceeds of the APO is for acquisitions. Acquisition has been a feature of Derrimon’s organic growth.
This started with the acquisition of Sampars Cash ‘N’ Carry in 2009 with the most recent acquisition being Woodcats International Limited, which was completed in 2018.
EXPLORING TWO AMERICAN ACQUISITIONS
Derrimon is presently evaluating two potential acquisitions in the United States of America. If these potential acquisitions are consummated, Derrimon is likely to realise significant synergies from vertical integration of those businesses with its existing business lines.
According to Cotterell, “although there is no guarantee that these two transactions will in fact be completed, we are reasonably confident of completing a transaction in the same industry within the next six months.”
It is the intention of Derrimon to apply to the Jamaica Stock Exchange (JSE) for admission of the new ordinary shares to trade on the junior market. However, the application for admission is dependent Derrimon’s ability to raise at least $3.5 billion from the APO.
If this invitation is successful as well as its application for admission for trading of the new ordinary shares to the JSE, Derrimon’s subscribed participating voting capital will exceed the maximum of $500 million set by the junior market rules.
Derrimon granted waiver to remain listed on junior market
As such the company has written to the JSE indicating its intention to seek its consent to remain listed on the junior market whilst paying the fees applicable to a main market company. The JSE has indicated by a letter dated December 2, 2020 that it has no objection to the company’s request.
For the six-month period commencing May 19, 2020 and ending November 19, 2020, the Derrimon stock price has increased by 23.76 per cent moving from $2.02 to $2.50. The company also paid a dividend on October 27, 2020 of $0.012 per share, which represents an increase of approximately 20.10 per cent from the prior year’s dividend.
As at the date of this prospectus, the board of Derrimon owns more than 60 per cent of the issued share capital of the company. If fully subscribed, that percentage will decrease, which Cotterell argued is not a signal of lack of confidence.
He explained that the dilution of the directors’ value of share equity in the company will arise because of the use of proceeds, particularly to fund growth by acquisition and also to repay debt. The Derrimon boss contends that if the APO is fully subscribed, this would lead to an increase in the economic value of Derrimon’s shares.
SIGNIFICANT DEBT REDUCTION EXPECTED AFTER APO
Derrimon has grown through the use of debt and given this reality, a significant amount of the proceeds will be used to reduce existing indebtedness. As such, the company’s capital structure would be reorganised so that a higher percentage of its cash flows will translate into benefits for shareholders.
Derrimon through its major distribution company, Sampars, with its online platform has been a significant player in facilitating online purchases of groceries.
COVID-19 has accelerated the adoption of digitisation by local consumers.
Derrimon expects that a significant percentage of consumers are likely to turn to digital mediums to purchase their essentials and therefore the company is well prepared to take advantage of this secular growth. In addition to organic growth, Derrimon has a long history of successfully acquiring and integrating other businesses.