My 86-year-old father holds 10,000 shares in Balmoral International Land.
As mentioned in your paper last month, the directors are seeking an extraordinary general meeting (EGM) to implement a forced redemption of his shares and force a significant discount on him so he does not believe the offer is a good faith offer.
He believes the redemption is not in the interests of the company but is in the interests of the directors and hence he believes they cannot legally do this.
He is a small investor as a hobby and does not know how he can raise his concerns. Can you offer him some help on where he might be able to get advice on this matter?
Mr B.G.
* The McCann family and what was originally Fyffes have always had a very close relationship. Charles McCann, grandfather of Balmoral chairman Carl McCann, first opened a grocery shop in Dundalk in 1902, becoming the first Irish agent for what was then a small London-based importer of bananas, Fyffes. The business evolved to eventually list in Dublin, initially as FII plc in 1981 and then, from 1990, as Fyffes.
After what was, at times, a rollercoaster ride for the family and shareholders, Fyffes split the business up in the back end of the Celtic Tiger.
The group’s property interests were spun out as Blackrock International Land in 2006, changing the name in 2010 to Balmoral International Land. The McCanns had a 40 per cent interest in this business from the start so they were always likely to have a strong say in proceedings, not least as many of the rest of the shareholders were very small in scale.
A few months after the Blackrock deal, Fyffes spun out its general fresh produce supply business as Total Produce, with the McCanns again holding a double-digit stake in the new company alongside existing Fyffes shareholders. The tropical fresh produce business remains as Fyffes as it was eventually sold to Japanese giant Sumitomo in 2016.
Although all three were initially listed businesses with investments held by all former Fyffes shareholders, Balmoral delisted in 2011 after its share price slumped following the property crash in Ireland.
In line with recent moves by AIB and PTSB, the company has a shareholder register featuring a few large shareholders and a raft of small stakeholders.
According to the circular sent to shareholders in advance of this month’s planned extraordinary general meeting (EGM), of the company’s 5,000 or so shareholders, almost 4,500 hold 500 or fewer shares in the business. To put that in context, that means each of those 4,500 investors has a stake amounting to less than 0.007 per cent of the business.
Balmoral says it is receiving an increasing number of requests from shareholders looking for an exit from the investment. Given that many of the original Fyffes plc investors would now be fairly old and others are now holding shares they may have inherited but which they have no real interest in, that certainly sounds plausible.
As a delisted business, there was much less liquidity in the shares which trade on the “grey” or unofficial market.
There is also the reality that many very small shareholders probably do not have stockbroking accounts and the broker cost of selling the shares would more than wipe out any face value return on the transaction.
Balmoral also makes the obvious point that running a small delisted public company with a large shareholder base imposes a burden in terms of cost and administration for the business that takes away from its focus on the core business.
The current move to buy out smaller shareholders is not the first. The company announced a Shareholder Redemption and Liquidity Programme last year when it first moved back into a cash positive position after many years, giving it the financial muscle for such a move.
Last year, the company said it would spend an initial €2 million to buy back shares – focusing on investors with fewer than 50,000 shares.
In an exercise that was purely optional, it agreed to pay seven cent a share. That was higher than the 5.5 cent at which the stock had traded in advance of the offer but sharply below the net asset value of the company’s portfolio which was reported to be 17.93 cent per share, according to its annual report which was published in advance of the buyback.
In the event, the company spent €2.56 million buying back 36.6 million shares from 1,344 shareholders – just under 5 per cent of the stock. That exercise brought the McCann family shareholding above 60 per cent. It also implemented a one for 100 consolidation which meant that for every 100 shares you held previously, you now hold just one.
Just over one year on, the company’s cash pot has grown again and, it says, it continues to head from shareholders looking to “unlock the value” of their shares. This is in the context where there has been little or no trading in the shares since the July 2023 buyback.
So the company is going again, only this time things are different. The big difference is that, now, for many shareholders, the offer is mandatory.
Anyone with fewer than 25,000 ordinary shares in the business will have their shares acquired at a price of ¤10.50 a share regardless of whether they want to sell or not.
Those who have more than 25,000 shares will also have their holdings acquired as a default unless they opt out of that process.
The issue, again, is the price. The €10.50 a share is more than double the price at which Balmoral shares last traded post-consolidation in the “grey market” last November. Since then, stockbrokers have stopped any dealing in the paper-based shares.
However, the price equates to just over half of the €18.72 net asset value per share of the company’s portfolio as of the end of June.
That’s a big deal. Small shareholders might reasonably expect that in a takeover situation, they would get a premium to its net asset value, or at the very least, parity.
And it is effectively a takeover. The large shareholders – led by the McCanns – are ousting smaller fellow shareholders in a company that is finally cash generating as they take it private.
And it is a done deal, as holders of over 80 per cent of all shares – including the McCanns – have said they will back the move at the EGM on Thursday week, November 21st in a move that inevitably gives them an even bigger stake in the company.
Those eligible for opting out must request a form to do so before 11am on Tuesday next, November 19th, and must return it completed and with any required supporting documents by 6pm on November 28th.
I am not sure whether the 10,000 shares that you mention your father has is his holding pre-consolidation or post-consolidation but either way, they will be acquired compulsorily. Is there anything he can do to hold on to the shares?
Shareholders do have rights in Ireland but they are limited and the bigger question, in practical terms, is whether it is worth your father – or someone on his behalf – getting involved in the battle.
Under the offer price, he will get €105,000 for his shares – assuming the 10,000 shares is a post-consolidation figure. If he were able to hold out for at least 100 per cent of the net asset value, as reported in June, he would receive a total of €187,200.
Clearly €82,200 is not to be sneezed at, but in terms of the potential costs involved in trying to block the compulsory purchase of his shares, it would not go very far. And he needs to remember that while shareholders have rights, so do companies in how they manage their affairs.
The two ways in which shareholders exercise their rights are by voting at or forcing general meetings of shareholders, and by recourse to law arguing that their rights are being oppressed. Their precise rights in a particular business will be determined by law and by the company’s memorandum and articles of association, or constitution.
As a broad rule, a company is obliged to act in the interest of the company as a whole, and not in the interests of a group of shareholders even where those shareholders may be in a majority. All shareholders, including minorities, have property rights.
However, given that over 80 per cent of shareholders are backing this motion, I see no way in which your father can force a change of heart at any meeting of shareholders, even if he could find sufficient dissenters to force a special meeting or a motion to this meeting – and time is certainly against him in marshalling any such action anyway.
As for the legal route, it must be shown that the act or measure complained of has as its primary motive the advancement of the interests of the majority shareholders as opposed to the interests of the company as a whole – oppression of a group of shareholders and/or disregard of their property rights.
The mere fact of the offer price compared with the paper net asset value, and the compulsory nature of the buyout are not in themselves proof of that. Nor is the outcome where the McCanns may hold 80 per cent of the private company.
Given the history of the company, the illiquidity of the paper-based shares, the uncertainties surrounding the commercial property market and the unlikelihood of any return to a listed market, at least in the medium term, the challenge facing your father is very significant, quite likely insurmountable. And the financial cost would be very significant.
Does it look like the major shareholders and directors are playing fast and loose with the interests of small shareholders? Yes. Can you stop them? In all likelihood, no.
Stock investment is a risky game at the best of times, particularly investing in individual stocks rather than exchange traded funds or other pooled investments. Investing in a company exposed entirely to the property market is riskier still. Sometimes it is better simply to cut your losses and move on.
I suspect that is his best option here. Any loss that the €105,000 crystallises can be offset against profits he makes on the future sale of other assets he hopefully makes this year or into the future. Any outstanding capital losses still in place when he dies will, as with any tax-liable capital gains, die with him.
* This article was edited on Monday, November 11th, 2024
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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