UPDATED March 19, 2017
Argentine premier landowner, private equity and real estate tycoon Eduardo Elsztain’s Dolphin Fund is said to be seeking to make a daring cash buyout offer for FIH group plc (LSE: FIH), formerly known as Falkland Islands Holdings plc, a British conglomerate which plays a key role in the economy of the disputed Falkland Islands, or Islas Malvinas, as they are known in Argentina.
The Falkland Islands are an archipelago in the South Atlantic Ocean on the Patagonian Shelf. As a British overseas territory, the Falklands have internal self-governance, and the United Kingdom takes responsibility for their defense and foreign affairs. The islands’ capital is Stanley on East Falkland. The islands have an English-speaking population of around 3,000, the majority of British descent, with approximately 42,000 tourists visiting the islands each year, 35,000 from cruise ships and 7,000 by air. According to Encyclopaedia Britannica, four-fifths of the population lives in Stanley, and almost the whole area of the two main islands, outside of Stanley, is devoted to sheep farming.
Controversy exists over the Falklands’ discovery and subsequent colonization by Europeans. At various times, the islands have had French, British, Spanish, and Argentine settlements. Britain reasserted its rule in 1833, although Argentina maintains its claim to the islands. In 1982, Argentine forces temporarily occupied the islands. British administration was restored two months later at the end of the Falklands War.
Most Falklanders favor the archipelago remaining a UK overseas territory, but its sovereignty status is part of an ongoing dispute between Argentina and the UK, although tensions have eased lately since Argentine president Mauricio Macri took office in 2015.
The British and Falkland Islands governments are said to be closely monitoring the status of Dolphin Fund’s potential bid, as any proposed change of ownership affecting assets held in the Falkland Islands is expected to be scrutinized for compliance with British national and international security interests and Falkland Islands Law.
The same is to be said about the economic,national security, and geopolitical interests of the government of Argentina.
Although Britain and Argentina reestablished full diplomatic relations in 1990, the issue of sovereignty remained a point of contention. In the early 21st century Britain continued to maintain some 2,000 troops on the islands, says Britannica. In January 2009 a new constitution came into effect that strengthened the Falklands’ local democratic government and reserved for the islanders their right to determine the territory’s political status. In a referendum held in March 2013, islanders voted nearly unanimously to remain a British overseas territory.
FIH is quoted on London’s AIM Alternative Investment Market and incorporated in the United Kingdom, with operations in the Falkland Islands and the UK. Its business activities in the Falklands are conducted by the Falkland Islands Company (FIC), established by Royal Charter in 1852.
FIC’s activities include retailing, property, insurance, hotels, shipping and fishing agency services. It is the largest retailer in Falklands with a 60% market share. FIC owns nearly 400 acres of land, with the potential for residential or commercial development. The company also owns 40 residential properties which are available to rent to individuals or business users such as Oil Services companies, Ministry of Defence contractors, and fishing companies.
In the UK the group operates a long established passenger ferry service across the mouth of Portsmouth harbour, Portsmouth Harbour Ferry Company (PHFC). In 2008 the group acquired MOMART, a London-based market leader in the handling and storage of fine art and antiquities.
Dolphin, which controls a 2.54 percent stake in FIH, said it has written to the board of FIH to request information to enable it to evaluate making a cash buyout offer, at a significant premium to a takeover bid by Staunton Holdings Limited of 300 pence per share, reflecting a total price of £37 million.
Staunton’s current bid represents a premium of approximately 27.39 percent to the closing price of 235.5 pence on February 9, 2017, the day prior to its offer. Edmund Rowland, the executive chairman of FIH, is the son of controversial British Conservative Party donor David Rowland. Guernsey, Channel Islands-based Staunton is controlled by the family’s Rowland Purpose Trust 2001.
On Friday, March 17, FIH shares closed down 1.53% at 322.50 pence, bringing its total market capitalization to roughly £40 million.
Dolphin is said to be seeking to engage in a friendly buyout, with London-based stockbroker Arden Partners plc acting as its financial adviser.
However, Staunton and its Blackfish Capital Management affiliate, which together own a 25 percent stake in FIH and are its largest shareholder, said that “it has not entered, and does not wish to enter, into any dialogue with Dolphin in relation to a possible offer.”
In addition, Staunton lowered the acceptance condition of its offer from a minimum of 90 percent of FIH shareholders’ approval, to 50 percent.
FIH operations in the Falkland Islands date back more than 160 years, when the Falkland Islands Company was granted its Royal Charter. From its early days as a major landowner and sheep farmer, controlling almost half the land area of the islands, the company has steadily widened its activities to provide a broad range of essential services.
The company’s main areas of activity embrace retailing (including food, clothing, electrical goods, home furnishings, gifts and DIY), residential and commercial property, the sale and hire of 4×4 vehicles, travel services including flight bookings, airport transfers and luxury coach and walking tours for tourists, insurance, agency services for cruise ships and fishing vessels, and the provision of freight and shipping services to and from the Islands.
Dolphin’s Elsztain, who stands atop one of the largest business empires in Latin America, is chairman of Argentina´s largest real estate company IRSA Inversiones y Representaciones SA (ADR)(NYSE: IRS); Argentina´s largest shopping mall owner and developer IRSA Propiedades Comerciales SA (formerly Alto Palermo SA) (NASDAQ: IRCP); Argentina’s leading public-private mortgage bank Banco Hipotecario SA (BCBA: BHIP); leading agri-business company CRESUD (NASDAQ: CRESY); BrasilAgro Sp (ADR)(NYSE: LND; SAO: AGRO3); BACS Banco de Crédito & Securitización SA; and Austral Gold (ASX: AGD) an Australian precious metals mining and exploration company with a portfolio of assets in South America, among others.
In addition, Elsztain is the chairman of IDB Group, one of Israel’s preeminent business groups, holding leading corporations in key business sectors alongside an ever-growing, global presence through diverse portfolio companies and joint ventures.
Photo: Eduardo Elsztain, Chairman of IRSA, CRESUD, BrasilAgro, Banco Hipotecario and IDB Group.