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GraceKennedy extends Key Insurance buy-out offer

The GraceKennedy Financial Group has extended its buy-out offer for Key Insurance for an additional two weeks.

The GraceKennedy headquarters in downtown KIngston.

An offer of $2.01 per share was made on January 20, 2020 to acquire 313,191,734 ordinary stock units in Key Insurance with the closing date being February 17.

However, in a notice to the Jamaica Stock Exchange (JSE), GraceKennedy said has extended the offer to March 2, 2020 at 4:30PM so shareholders can arrive at an “informed decision.”

An offer of $2.01 per share was made to acquire 313,191,734 ordinary stock units in Key Insurance.

“Unfortunately, to date, the Directors’ Circular has not been circulated to the shareholders in response to our Takeover Bid Circular dated January 20.2020,” GraceKennedy said in the notice yesterday, February 17. “ Accordingly, upon the request of the Board of Directors, we have decided to exercise our discretion to extend the offer period to ensure that the shareholders have the opportunity to receive all the information necessary to make an informed decision.”

Previously, the Board of Key Insurance Company has recommended that its minority shareholders accept the $2.01 per share offer.

“We have decided to exercise our discretion to extend the offer period to ensure that the shareholders have the opportunity to receive all the information necessary to make an informed decision.”

– GraceKennedy Financial Group

The recommendation came as the board received the advice of an independent assessment from the international auditing and management consultancy firm of Ernst & Young Services Limited (EYSL) on the proposed $2.01 per share purchase of the remaining shares in Key Insurance with GraceKennedy having already acquired 15 per cent interest last December.

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.

When GraceKennedy announced the purchase of the shares, it advised of its intention to make a cash offer to purchase 100 per cent of the issued share capital of Key at a price of $2.01 per share.

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.

In a Directors circular posted February 15 on the JSE website, the Key Insurance board said it is recommending that minority shareholder accept the offer which it deemed to be fair.

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 at September 30, 2019.