Grace Kennedy & Co. Ltd. was incorporated on February 14, 1922 and was listed on the Jamaica Stock Exchange (JSE) September 11, 1986. During the depression years of the 1920s, W.R. Grace of New York sold shares in Grace Limited to its local Manager (Fred W. Kennedy) and Accountant (James Moss-Solomon) and in the 1930s sold its controlling interest to Luis Fred Kennedy because of the political agitation of that period.
The company started as a trading and wharf operation and in the 1950s expanded into hardware and manufacturing. Its two most difficult periods were at the heights of World War II and the economic upheaval of the 1970s but during both periods continued to expand by seizing opportunities where others wilted.
Three good Chairs to Grace
The first Chairman and Governing Director of Grace Kennedy Dr. John Grace led the company from inception to the time his family’s remaining interest was sold in the 1940s. Luis Kennedy then took the rein and continued to grow the business until the early 70s when the baton was passed to Carlton Alexander. The expansion intensified under Carlton up to 1989 and following his death Rafael Diaz was appointed Chairman and Chief Executive Officer (CEO). No one doubted the difficulty any successor to Carlton would have had in filling his boots and the lacklustre performance of Rafael confirmed- with two disastrous acquisitions to boot (Challenge Enterprises and Goldcrest Farms). It is my opinion that Carlton’s preferred choice was Douglas Orane.
Orane juice
Douglas joined Grace Kennedy in 1981 and moved up the corporate ladder rather quickly. Although groomed by Carlton, he was not quite ready by the time Carlton died and Rafael who had been Deputy Chairman since 1980 was an ideal placeholder. Douglas subsequently became Chairman and CEO in 1998, continuing that bad habit of the company of reposing the dual role in a single person.
What Carlton achieved by way of expansion, Douglas undid through consolidations and divestments. He juiced all the profits out of existing operations and those that yielded none were spat out the Grace Kennedy way, to its managers. He equalled Rafael 4:4 in the number of bonus issues between 1989 and 2002 and the market unwisely rewarded most of the bonuses by pushing the stock price up.
As depicted in the chart below the cumulative pre- bonus stock price of Grace Kennedy started to move ahead of the cumulative JSE index in early 2003.
Buy-back of shares
At GraceKennedy’s Extraordinary General Meeting held on May 29, 2006, the company approved amendments of the articles of association of the Company to facilitate the buy back by the Company of such numbers of shares as the Directors may determine subject to the provisions of the Stock Exchange rules of Jamaica and the other territories in which the company is listed. The Stock Exchanges were subsequently advised of the decision made by the Board to repurchase up to 2.5% of the shares in issue from time to time, over a period of three years following the expiry of twenty-one days from the date of the notice.
It is not clear from the foregoing how the company plans to achieve such, whether through tender offer or on the open market. In either case the effect is the same, that of reducing the supply. The overall message is that the company sees no better investment at this time than its own shares. The company’s earnings per share (eps) have been flat around the $6 mark for the last three going on to four years. At the same time the stock price ran ahead of itself and the market and what is now being experienced is a retracement and shareholders money should not be wasted to prop up the share price or to ward off potential acquisitors.
Opportunities or threats
Luis Kennedy and Carlton Alexander made some of the best acquisitions for Grace Kennedy during the worst possible times in the 1940s and 1970s respectively. Those were men of vision who saw through the dark clouds. Like then, opportunities abound even among listed companies, a few that readily comes to mind are Seprod (Grace having lost twice to them-Standard Soaps in 1935 and Goldcrest Farms in 1989), Salada Foods and Jamaica Livestock Association as good fits for Grace.
Best before: March 28, 2002
The purchase by Grace Kennedy Pension Scheme of the 11.78 per cent shareholdings of Kingston Wharves Limited in March 2002 was a serious miscalculation by Mr. Orane. It was only made worse when the JSE pulled out the rules governing Take-overs and Mergers for Grace to rebut the presumption that the company and its pension scheme were acting in concert, thereby requiring that they make a mandatory offer to all other shareholders. Grace initially offered the lame excuse that they did not control the Pension Fund and since that could not fly they agreed to sell the newly acquired shares.
Within months (September 2002), Lascelles Group sold its 18.7 per cent of Kingston Wharves not to Grace but to a consortium of shipping interests at $1.35 per share. The cost to Grace on its purchase was $1.20 per share and had it made the mandatory offer it could have acquired even at a premium the company for approximately 50% of its net book value of $2.52 per share. Instead, it launched into a tirade against Lascelles about the sale of its shares outside of the exchange and for the first time publicly expressed its own interest in acquiring the stock. Grace also sought to block representation by the consortium on the board of Kingston Wharves, incurring unnecessary legal costs in the process. Eventually Kingston Wharves was extracted from Grace Kennedy’s clutch by the very consortium, ending its long history of involvement at that Port.
Non Executive Chairman
Grace is at a critical point in its existence and should consider making the role of Chairman a non-executive position. That independence would add a lot of credence to its policy on corporate governance especially in light of the significant holdings of its shares by senior management acquired by way of stock options.
Sources: Jamaica Gleaner, Jamaica Stock Exchange and Gracekennedy.com
