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Is The “Undervalued” GraceKennedy Group an Acquisition Target? 4/4 Split Into Two Separate Companies ?

Is The “Undervalued” GraceKennedy Group an Acquisition Target? 4/4 Split Into Two Separate Companies ?

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Should GraceKennedy be split into two separate companies – GK Foods and GK Financial Group?

Analysts believe that GraceKennedy Group CEO Don Wehby will now be under pressure to increase shareholder value to ward off any possible thoughts or attempts at a friendly acquisition or worst a hostile takeover.

Options include but not limited to putting ailing business units up for sale, boosting returns via buybacks and setting higher profitability goals, and reviewing the company’s two-business unit corporate structure.

But by far the most radical approach would be to a complete split between the food and finance businesses. The two divisions are however seen as a complement to each other by giving the group greater distribution scale in the Jamaican and regional markets.

FOOD TRADING
This comprises the business of food manufacturing through owned factories as
well as through external suppliers, the distribution of Grace and Grace owned brands
in Jamaica and internationally, and the operation of retail outlets through the
Hi-Lo Supermarket chain in Jamaica. The Group also manufactures and distributes
third-party brands in Jamaica and internationally. GK Foods operates primarily
in Jamaica, the Caribbean, Central America, North America, Africa, the United
Kingdom (UK), and other European countries.

FINANCIAL SERVICES
This comprises commercial banking, general insurance, insurance brokerage,
investment banking, remittance, cambio and payment services businesses. The
financial services companies presently operate within the English-speaking
Caribbean.

Erica Campbell works in the Jamaican financial sector and finds the idea of splitting the Group into two separate companies as “Very thought provoking… hmmm… it’s worth a try. We have to first analyze the different segments and see how viable each one would be on its own. Grace foods has been the “flagship” brand in the foods industry and has maintained its position for many years… if there is a question about its viability on its own then… its history should be able to speak for the brand. As it relates to the Financial Group aspect… Grace has been gaining traction in the industry…FGB, remittance service and insurance etc. but the competition in the financial sector is picking up too… what ranking does the brand have in this sector… what is the bottom line like? A lot of aspects to ponder. So unless there are other internal factors at play for example proper financial reporting, if it’s not broken, don’t fix it.”

“Sure, it would be wise to split the two” commented Julian Morrison, “The two have different betas and it wouldn’t be reasonable to let the sluggish growth of the food business hamper the momentum from the financial services business lines within the group.”

For Sushil Jain splitting of the GraceKennedy Group into two separate companies – GK Foods and GK Financial Group will have its pros and cons and a detailed study will have to be done. “On a superficial basis” he offers “one can say that the split would be beneficial because: the benefits of them being together are not so clear. The split should help in each one having a clear focus. But then one can say that the Group already has two separate Divisions focusing on their respective core businesses. A detailed study will be required to identify the benefits, cost savings, loss of benefits/synergies, impact on brand recognition etc. Such decisions cannot be taken lightly.” BM

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