13 FEBRUARY 2002
David Lindsay speaks to Globe founder and Chairman Christopher Pace about the companys intention to merge with the Maltese operations of British American Insurance. Mr Pace provides details of the merger, which is significant in that it is to effectively merge two companies within the financial services sector.
How do you see the merger of Globe with British American Insurance affecting the operations of the companies and what tangible benefits do you see in the merged operation?
I believe the merger makes a lot of business sense and, as a larger shareholder of the company, I am putting my full backing behind it.
I think the fact that we will be effectively adding a counter-weight to our current operations, whereby two new businesses with non-correlated revenue streams will be bolted onto the group, will provide Globe with far greater stability.
Its no secret that the worlds stock markets over the last 12 months have been extremely difficult, with the events of 11 September only making matters worse. Given that scenario, our normal business operations, which are totally reliant on such markets, have been under a lot of pressure.
As such, the merger would ensure that when we do go through difficult times like this, there would be no need to implement structural alterations and other similar measures. This would make the business healthier, as we would no longer be looking at a major shake-up when external factors take their toll on us. At the same time, I believe we would be in a position to use the platform of the merged group to go forward into new and exciting businesses.
In fact, one of the areas that were looking at, although its still early days, is that of creating a hybrid financial institution. This would not be an actual bank, but it would still be able to offer, for example, credit facilities to consumers for certain goods and services. I feel that the banks in that area are still not competitive enough.
Possibilities such as consumer leasing are also being explored. As you know, were working in property leasing with the Property Leasing Company, which is on a different level from consumer leasing. But we believe that consumer leasing could have a solid future in Malta, as its something that no one has yet brought to our shores and which has great potential.
In this scope, British Americans property business would tie in with the operations of PLC. In fact, British American has a very successful consumer leasing business in Mauritius and is in possession of both the expertise and the software.
The concept is something that can be successfully introduced to Malta. So much so that British American are considering appointing the person who spearheads their successful consumer leasing operation in Mauritius to sit on the Globe board as one of their representatives.
How was the scope for the merger initially identified?
It goes back about three years when I was introduced to the chairman of British American, Dawood Rawat, in London. We had a very interesting lunch during which it was evident that we saw the world, and Malta in particular, very much through the same eyes. We both identified that fragmentation in Malta is the biggest drawback to business and that the only way to move forward is to combine strengths, especially if these strengths are complimentary.
Fortunately, he was not shackled by the Maltese phobia of protecting ones own turf and being reluctant to have outsiders becoming involved in his business affairs. This very attitude is one of the biggest downfalls of Maltese business and, being an international businessman, he could see that and we hit it off from the outset.
We then kept meeting from time to time in Malta and in London, until I finally popped the question of marrying the two companies in order to move forward toward new and exciting businesses, which we feel have a future. However, this would not only be on a local level, but also on a regional level. Through our combined strengths we found we could operate on a regional basis. In fact, the new board of directors after the merger will be 70 per cent foreign.
How would the new shareholding of Globe be broken down?
The eventual shareholding of British American would be 47 per cent of the merged group, which could go up to 49.9 per cent if certain taxation issues are resolved with the authorities. But were basically talking about a 47 to 48 per cent shareholding going over to British American, while existing Globe shareholders would retain the remainder.
This means that the existing Globe shareholdings would be diluted practically by half, but the silver lining to that lies in the fact that shareholders would then have half of a far more diverse and stable group than what theyve had before, which is unfortunately rather volatile and totally dependant on external factors.
Both companies have concluded their due diligence exercises, what aspects of the companies were explored and what conclusions were reached?
It was a very detailed due diligence from both sides. I understand that even BUPA had carried out its own due diligence, apart from that of British American.
Both sides carried out a full review of the others affairs. We were fully satisfied with the results and were looking forward to begin operating as a merged group as soon as possible.
So much so that regular meetings have commenced with the managements of Globes, British Americans and BUPAs subsidiaries, which I chair, through which were already looking at the synergies that can be achieved from the merger.
You still have two approvals pending, that of the Malta Financial Services Centre and that of the shareholders, do you foresee any hurdles within this scope?
The upcoming extraordinary general meeting for Globe shareholders will have to approve the merger. So were in the process of completing an information memorandum, which will give a blow by blow account of our negotiations with British American.
Obviously the shareholders will be given the full details and I expect that this information should give them enough ammunition with which to vote in favour of the resolution because, as I have said, were bringing to the company greatly enhanced stability and diversity.
Similarly, from the regulatory side weve already held high level meetings regarding the principle of the merger and we have not been given any negative indications. In fact, we found that the regulator has been very co-operative and we are working closely together to achieve the desired results in the least possible time.
Nevertheless, the merger agreement states that the financial results of the merged company will be reflected from 1 January this year. So even if the merger process lasts another six months, which I expect it to due to the number of processes that need to be carried out, the financial results the group will be announcing at the end of this year will reflect all the merged subsidiaries as of the first of this year. As such, the results will be retrospective even though things will take time to fall into place.
Once the merger is concluded, how do you expect it to affect Globes share price?
I sincerely believe that this is a very positive step forward and I think that the market should analyse the aspects of the new subsidiaries that are being bolted onto Globe very closely. Once that is done, I believe they should determine that the company undoubtedly holds some good prospects.
How would you explain last years drop in the face value of Globe shares?
The shares were issued at 42c and currently stand at about 26c. Its a substantial fall but I think it has actually been very much in line with the market in general.
If one had to look at the other equities such as Maltacom for example, its fallen from Lm3 to Lm1.20. That, of course, is an example, but most equities have dropped in price on the whole, not just on the Malta Stock Exchange, but even abroad.
The world has changed somewhat over the last 12 months and, unfortunately, the worlds markets are going through a bit of a recession at the moment.
How do you see the local equity market performing over the rest of the year, do you see it picking up momentum?
I think a lot depends on the privatisation process. If that process doesnt kick in as soon as possible, I feel the market will remain stagnant as I dont see much of a future as things currently stand.
However, I dont believe the privatisation process should be swallowed up by international/Maltese consortia taking over chunks of government enterprises, the general public needs to be involved in the process.
What other markets is Globe looking at expanding into?
Globe will be changing dramatically through the merger, in terms of its focus, strategies and its make up. Through the merger we will become more of an international company and we hope to use Malta as a hub for the North African and Middle Eastern region, which, we feel, is a very strategic thing to do.
We would like to replicate in those markets a lot of what weve done successfully in Malta. This would present itself in our fund distribution activities, our retail outlets and the new products we will have through the merger.
There is definitely scope for such an expansion, as many of these North African countries have yet to introduce financial liberalisation to the extent that Malta has. We are very much looking forward expanding in that direction and to hopefully being be among the foremost operators in those countries.