The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government must ensure a minimum 25 per cent equity stake in Bahamas Food Services (BFS) is sold to the Bahamian public if it approves the company’s purchase by Sysco, a prominent businessman also warning it to guard against a food wholesale monopoly.

Emphasising that he was not speaking for AML Foods, Dionisio D’Aguilar, the BISX-listed food retail group’s chairman, urged the Government to follow the ‘Commonwealth Brewery model’ established by the Ingraham administration for dealing with the acquisition of major Bahamas-based companies by foreign buyers.

Suggesting that, as in the Commonwealth Brewery initial public offering (IPO), the Government ensure Bahamian investors buy into BFS at the same price as Sysco, Mr D’Aguilar also backed the Christie administration’s decision to consult widely on whether it should approve the purchase.

Acknowledging the concerns of rival Bahamian wholesalers, who fear Sysco’s scale and buying power could force them out of business through price undercutting, Mr D’Aguilar warned the Government that it needed to guard against this and prevent a BFS/Sysco monopoly from emerging in the medium-long term.

“I think the Government is very wise to consult on, and to assess, the ramifications of a decision of such magnitude,” Mr D’Aguilar told Tribune Business. “If, at the end of the day, the Government does agree to bless the sale [of BFS], then some sort of Commonwealth Brewery-type deal should be pushed.

“It is important for Bahamians to start to own sectors of their economy, rather than keep them consistently in foreign hands. If the decision is there for the foreign owner to divest of its holdings, there should be an opportunity to at least try and see if Bahamians will take ownership in this important sector.”

In return for approving Heineken’s acquisition of the 50 per cent Commonwealth Brewery stake held by Associated Bahamian Distillers and Brewers (ABDAB), the Finlayson family-controlled entity, the former Ingraham administration in 2010 mandated that the Dutch brewing giant sell a 25 per cent stake in its Bahamian asset to local institutional and retail investors. This both maintained some local ownership and part-replaced the equity relinquished by ABDAB.

The former government saw this, and other IPOs, as broadening the Bahamian economic ownership base and creating a shareholder democracy. It is unclear, to date, as to what the Christie administration’s position is, as it is still consulting. However, it is understood Sysco is offering something slightly different to the ‘Commonwealthy Brewery model’.

Tribune Business has been told that, as with its previous ‘failed’ attempt to acquire BFS in 2005, Sysco is offering to do a Bahamian Depository Receipt (BDR) offering to Bahamian investors. These wil not be direct shares in BFS, but derivatives of Sysco’s New York Stock Exchange (NYSE) listed shares, with their daily BISX closing price determined by the final New York price.

Whether a BDR offering will be acceptable is unknown, but Mr D’Aguilar said an IPO of a 25 per cent equity stake in BFS, the largest food wholesaler/distributor in the Bahamas, “sounds reasonable”.

He added: “All the benefits of Sysco’s size, efficiencies and purchasing power should not go completely to Sysco. Sysco is a US company owned by Americans, and we should have the benefits of its purchasing power accrue to Bahamian shareholders.

“Hubert Ingraham, under the previous administration, developed a good strategy to begin to broaden the ownership of the economy from large multinationals to local investors. I rather like that model.

“They [Sysco and BFS] will argue it’s going from foreigner to foreigner, but I do think it’s important the Government be seen to be broadening the ownership of large companies, and by issues to Bahamian shareholders.

“The Commonwealth Brewery structure seems to be fair and reasonable, and everyone seems to be happy with it. The benefits accrue to locals and foreigners.”

Mr D’Aguilar also urged the Government, if it approved Sysco’s BFS purchase and a share offering, to ensure Bahamians acquired stock at the same price as the multi-billion dollar Texas-headquartered giant.

“What the Ingraham administration insisted on was that the price the large multinational purchased for was the same price Bahamians purchased the shares at,” he told Tribune Business.

Agreeing that the Government needed to be seen as consulting over the Sysco/BFS tie-up, Mr D’Aguilar admitted he had little idea about how to address the concerns of rival Bahamian wholesalers if the deal was approved. They have already expressed concern to Tribune Business about Sysco’s ability to undercut them on price, and squeeze them out of the market.

“I don’t know what the answer is to that,” Mr D’Aguilar said. “I understand the concerns of the local wholesalers. If I was them I’d be worried, and I’m sure they are.

“That having been said, I don’t think the retailers are particularly worried. Assuming Sysco does not go into the retail business, which is not their main operation as we’ve been led to believe, I don’t think the retailers are so concerned.”

Still, the AML Foods chairman warned the Government not to allow Sysco/BFS, if the deal was approved, to eventually become a food wholesale monopoly by squeezing out the competition.

“You don’t want one person to come in and knock out the competition,” Mr D’Aguilar said. “They may start by lowering their pricing, but that could lead to a monopolistic environment, which leads to higher prices. The Government must be mindful of that.”

But, with Atlantis and Baha Mar likely to be BFS’s two major customers, this would “keep them in check”, Mr D’Aguilar noting that the two resorts could switch to direct purchasing from abroad if prices rose too high.

Unable to identify a Bahamian entity that could “afford to buy” BFS, he also called on the Government to make a decision one way or the other, and not to “let it drag on for years; tell them yes or no”.

There are several competing factors that will influence the Government’s thinking on BFS. While the company operates in an area supposedly reserved for 100 per cent Bahamian ownership only, it is already foreign-owned in the shape of Florida’s Frisch family. Therefore, it might not be such a great leap to allow new foreign owners in the form of Sysco, especially if Bahamian shareholders are brought into the mix.

And, while the concerns of rival wholesalers are understandable, others are likely to point to the long-forgotten Bahamian consumers and improvements in their welfare, especially if Sysco can deliver lower prices at improved quality.

BFS employs 300 Bahamians operating from its 116,000 square foot head office, set on 20 acres, off Gladstone Road. It is affiliated with the Frisch family’s other entity, Jacksonville-based Beaver Street Fisheries. Ben Frisch, the family’s head, has been exploring potential exit routes from BFS for several years as part of his succession/estate planning.