AN OPEN LETTER TO ALL SHAREHOLDERS
OF
TRINIDAD CEMENT LTD.
FROM THE
OILFIELDS WORKERS’ TRADE UNION
Dear Shareholder,
You are today placed in the enviable position of having to make a decision that has implications far beyond that of Trinidad Cement Ltd. It is therefore a time for you to engage in serious and sober reflection.
When the Government of Trinidad and Tobago divested TCL in 1988 it placed all the shares of TCL on the Stock Exchange, but held 29% for itself. In addition, the Government retained what is called “A Golden Share”, by which, although being a minority shareholder, it could exercise a veto over the majority. This was to ensure that a company as strategic as TCL operating in an industry that was of strategic importance to the country, would not pursue policies that were inimical to the national interest.
Subsequently, the Government sold, first 20% of its 29% to Cemex and then placed the other 9% on the Stock Exchange. It also relinquished its “golden share”. However, in the process the Company’s by-laws were amended so that no single shareholder (either corporate or individual) could own more than 20% of TCL’s shares. This was to ensure that no single shareholder could become so powerful that it could direct the company in a manner that was inimical to either the shareholders’ interest or the national interest.
Today Cemex wishes to remove that 20% ceiling on share ownership by a single entity. They wish to have ownership and therefore control of TCL. The ceiling is the first obstacle to that desire.
The Government, as the “custodian” of the national interest does not have a vote at the shareholders’ meeting. It is therefore up to you, the shareholder, to make a very important decision. It is a decision that will impact on both your interest as a shareholder and the national interest. It is therefore a decision that, in our view, you must make on the basis of a consideration of all the issues.
THE ISSUES:
o SHAREHOLDER VALUE.
We recognize your undoubted concern about shareholder value. After all you bought TCL shares as an investment and you wish to be able to get good returns on that investment. There are, however, several factors that you need to consider before making your decision. Firstly, is the TT$7.15 price offered by Cemex the best price? In Puerto Rico, for example, Cemex is offering US$35 per share! Is the Puerto Rico operation worth 35 times that of TCL? We doubt it.
Secondly, your TCL share was trading at just over $5 prior to Cemex’s offer. We know that this is a somewhat low price but what are the longer term projections for TCL? It is well known that the cost of expansion of TCL and, in particular, the acquisition of Carib Cement in Jamaica, cost the company a fair amount. This, together with the negative impact of ‘dumped’ cement caused TCL’s net profit to fall in 1999 by $15 million. However, in 2001 it was at its highest level ever - $93million! And all projections indicate that the Jamaican operations are now into the black and therefore TCL will perform very well. This means that you are quite likely to see your share price appreciate over time, quite apart from your receiving a decent dividend.
But there is yet another issue and that is this. If you simply want to make a quick dollar, then no doubt you can sell your shares at $7.15. But if you then wish to reinvest that money, where will you place it? If Cemex were to buy the 80% of TCL’s 250 million shares it now wants, then this will pump some $1.4 billion into the financial system. What investments are there to mop up this huge cash injection? The honest answer is –none! The stock market cannot absorb such an amount as there are no new offerings. The local bond market is flat since the government has reached its borrowing limit and cannot get approval for more borrowing since there is no Parliament. The banking sector is extremely liquid and therefore any additional cash will depress interest rates even further. The foreign market for stocks is very vulnerable right now as share prices are falling and interest rates are extremely low. Your present rate of return on TCL shares of 14% is therefore better than you can get if you were to sell and then invest elsewhere!
As noted economist Mary King has stated “if the shareholders in T&T were to accept cash for their TCL shares then, the new cash available will only add to the problem of high liquidity, low interest rates (that drive low returns on fixed income securities) and a reduction in the available stocks on the local market. The sale will release money that can go chasing the limited shares on the market. Of course share prices across the board will increase but return on capital invested will be reduced.”
If you are an institutional investor such as a pension fund, insurance plan, credit union or mutual fund you have the added responsibility of being a fiduciary trustee. Not only would a sell of TCL shares prove to be wrong in the short term, it would also be wrong in the long term, since the medium to long term consideration is that TCL is well placed to continue its growth path. The Trinidad and Tobago economy will see tremendous growth for the next 10 years or more. There are opportunities to export into Latin America. Jamaica is likely to see growth as well, as will Barbados. If this were not the case, why would Cemex be willing to put out more than US $240 million to buy out TCL?
When it comes to the long term, therefore holding an asset such as TCL shares is more than a wise decision. And your fiduciary responsibility must see you taking more of a long term than a short term view!
o THE NATIONAL INTEREST
We insist that the TCL issue involves matters that go beyond that of only shareholder value. For example, if our economy is to grow and develop then we need to encourage strong, competitive firms that are locally owned and that produce both for the local and export market. TCL is one such firm. It has become a major actor within Caricom, and this is yet another significant development since we are supposed to be committed to the Caribbean Single Market and Economy (CSME) as a vital strategy to deal with globalisation.
To allow Cemex to takeover TCL is therefore to admit a weakening of our effort to build local and regional firms that can create wealth and have that wealth as widely distributed as possible. There are at present more than 6,000 TCL shareholders and all of these receive benefits when TCL does well. Many credit unions and pension funds own TCL shares. When TCL does well, all the members of the credit unions and all the members of the pension funds benefit. The Unit Trust and the National Insurance Board own significant numbers of TCL shares. When TCL does well all the thousands of Unit holders and every single person who has ever contributed to the NIS benefits!
If Cemex were to buy out 100% of TCL then only Cemex will do well. This is what monopoly ownership is about. Monopoly foreign ownership of our important and strategic industries and companies is not in the national interest!
TCL is a well managed company that has made us all proud as nationals of the Caribbean. It will continue to make us proud. We have too few such examples and we therefore cannot afford to return to the days when to be “local” was synonymous with being worse or inferior.
If Cemex were to takeover TCL then a major precedent will be set that will have far reaching implications for ALL companies that are listed on the local stock exchange. Thus, a large international bank could say it wished to buy out one of our local banks. Or a global insurance company may buy out our large publicly traded insurance companies. Where will this process end? With all the major companies whose shares are traded on the stock exchange being de-listed because they are now 100% foreign owned? Is this what we wish for our economy? With no more local equity market, where will institutional investors place their funds? What will happen to the objective of building a regional capital market? What will the ownership structure of key firms and industries look like?
These issues are well put by the Caribbean Investor as follows: -“but no business decision as significant as this one that affects all of Caricom could ever be so simple as to be based only on a quick profit for the shareholders. When TCL’s track record is examined, their management has; successfully turned around Arawak in Barbados and Carib Cement in Jamaica in a short space of time, acquired Readymix that has shown excellent returns, further integrated its production processes in raw material mining and gypsum sales, added production of paper sacks and slings, and set up an effective marketing, handing and distribution network throughout the region, while fighting dumping from Thailand and Indonesia in both Trinidad and Jamaica. Maybe the company’s most critical stakeholders should have more patience and view the company’s existence in the wider context of the development of the region and its tiny economies.. A strategic alliance and some shareholding with Cemex could certainly make sense, but globalisation or not, Caribbean Investor and the CAIC Times is not prepared to support the casual surrender of total control of such a significant industry to a company outside the region” .
o OTHER ISSUES
There are several other issues, not the least of them being the job security of workers here in Trinidad and Tobago and in Barbados and Jamaica. In spite of all the promises by the representatives of Cemex to the contrary, we wish to state that in our meeting with Mr. Hector Medina, Cemex’s Director of Finance and Planning, he stated that he could “give no guarantees”. This is consistent with his comment given to the April 2002 edition of the “Latin Finance Magazine” as follows: “When Cemex buys a new company, it sends teams of executives to swarm over it looking for savings, efficiency gains and headcount reductions. The need to integrate systems, management techniques and even equipment as far as possible. The company imposes standardization and centralization at every stage of the process to wring maximum savings by reaping economies of scale and tightening controls”. (our emphasis).
We do not believe that we need say more at this time. TCL is a good company. It is a profitable company. It is strategically important to Trinidad and Tobago and the wider Caribbean. It is a company in which you should continue to invest. It will grow. It is well managed. It ought to be owned by the broadest possible number of shareholders and not by a monopoly. The takeover by Cemex will have long term repercussions for the local economy and for the CSME. It will undermine our efforts to build locally owned firms that are creating and distributing wealth. It will weaken the local and regional capital market. Workers will also be the losers.
For all these reasons we invite you to decide against removing the 20% ceiling on ownership by a single investor of TCL shares.
VOTE AGAINST THE RESOLUTION ON JULY 29TH!