Melstacorp offers to go up to Rs. 112.83 for Spence

Unidentified director’s share dealing causes unexpected complications
Highest price per share paid by director not disclosed

Distilleries Company’s 100% subsidiary, Melstacorp Limited, has in an announcement made to the CSE last week expressed willingness to increase their mandatory offer price for approximately 70% of Aitken Spence PLC to Rs.112.83 increasing the previous offer price of Rs.110.

However, Melstacorp has said that if the SEC determines that the price should be higher than the Rs.112.83 offered, they have sought the Commissions’s concurrence to divest a quantity of Aitken Spence shares to render them not liable to continued with the mandatory offer.

The filing, through an announcement to the CSE, said that any higher price will not be financially viable to Melstacorp.

Although Melstacorp announcement said that its officials have had a preliminary meeting on Jan. 18 with officials of the SEC, SEC’s Chairman Tilak Karunaratne said yesterday that this matter has not yet been formally communicated to the members of the SEC.

Melstacorp has fallen into trouble over the mandatory offer as a result of one of its non-executive directs having during the 12 months preceding the date on which the obligation of making the mandatory offer arose traded in shares of Aitken Spence paying a price higher than the Rs.110 paid by the mandatory offeror (Melstacorp and parties in concert).

As a director of Melstacorp will be legally considered a party acting in concert for the purpose of the offer, the liability of increasing the offer price had therefore arisen, analysts explained.

The announcement did not identify the non-executive director concerned nor disclose the highest price that he had paid for an Aitken Spence share during the relevant period.

Melstacorp has explained that the Spence shares in question had been acquired by the broker of the director concerned with whom he had maintained what was called "a discretionary account."

This permitted the broker to deal in the shares without any instructions given by the principal (the director concerned) who had therefore no knowledge of the purchases.

Melstacorp said that at the time of acquisition of shares by Melstacorp triggering the mandatory offer requirement, this director had zero shares in Aitken Spence.

The announcement said that the director concerned had owned immediately prior to the relevant 12-month period a brought forward balance of 30,000 Spence shares. In January 2011 his broker had sold 14,300 of these shares and purchased 15,600 shares. In April the same year the broker had purchased a further 4,600 shares.

Melstacorp stressed that during November and December 2011 he had purchased no shares but had sold 35,900 ending with a zero balance by December 6, 2011.

On the other hand Melstacorp had purchased Spence shares from December 2, 2011 from a zero balance to December 22, 2011.

"None of the other four parties in concert, namely Distilleries Co. of Sri Lanka PLC, Milford Exports (Ceylon) Limited, Stassen Exports Limited and Periceyl (Pvt) Limited have had any purchases during the relevant period except their brought forward balance from prior to the relevant period and a few sales made," the announcement said.

Melstacorp has said that it has computed what it called the "adjusted price" based on the Volume Weighted Average Price (VWAP) using a formula previously accepted by the SEC.

The VWAP has been computed by dividing the total value of shares traded during the period divided by the total volume of shares traded in the same period.

The total value of purchases by the director and Melstacorp was Rs.59.9 million while the total volume purchased 530,000 shares and by making the division the

the VWAP of Rs.112.83 arrived at.

This is the level to which Melstacorp is willing to go up to pursue its mandatory offer. Going higher would be unviable, the company has said and asked the SEC for authority to divest a sufficient number of shares to go below the level that obligates a mandatory offer if it cannot agree with the VWAP price formula.

However, analysts say that usually mandatories are made on the basis of the highest price paid per share during the relevant 12-month period. The Melstacorp announcement does not disclose the highest price per share paid by the director during the relevant period.

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