UK Privy Council dismiss Caribbean Steel defunct
From SteelGuru
Jamaica Observer reported that the UK Privy Council dismissed the defunct Caribbean Steel Company’s case against Price Waterhouse over alleged negligence in the accounting firm’s valuation of a company, which the maker of steel products bought in the mid 1990s.
The 15 year old legal battle ended yesterday, after the final court handed down its decision, which, among other things, said that the way how PW approached the valuation of a surplus in the pension fund of Caribbean Cable Company in which a majority stake was bought by Carib Steel was not negligent.
More specifically, it was decided that Carib Steel’s borrowings from the pension fund up to USD 3.6 million by early 1995 did not diminish the USD 13.8 million surplus included in PW’s evaluation.
The board of the Privy Council said that “They were receivables repayable on demand. The board notes that it was not alleged that PW ought to have had doubts as to the company’s ability to pay on demand.”
Using three valuation methods, PW determined that Carib Cable could be valued at USD 43.5 million, if an estimated annual maintainable net earnings figure to which an appropriate multiplier of 6.5 was applied; USD 14.4 million, if the company was liquidated and USD 48.3 million, if the company was able to expand into additional export markets, based on Carib Cable’s management forecast.
Carib Steel entered into a non-binding agreement to buy a 50.1% stake in Carib Cable for USD 32 million in late 1994 and engaged PW to conduct a valuation of the cable and wire-maker before going ahead with the transaction.
The Privy Council document published on its website said htat “The purchase price was agreed prior to PW’s valuation and Carib Steel did not subsequently seek to adjust it. It was significantly higher than PW’s estimate of the value of the shareholding in the company’s existing circumstances, but significantly less than its potential value after the injection of new working capital in order to develop new export markets. That prospect must have provided the motivation for the purchase.”
The accounting firm found that Carib Cable’s expansion, which was being funded by debt, had previously been stalled as a result of a workers strike combined with a drop in existing sales from the general uncertainty surrounding the elections in early 1993 and a delay in the budget of that year. As a result Carib Cable ended up in liquidity problems, where the company amassed indebtedness of almost USD 77 million by August 1994.
Source – Jamaica Observer
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