Gaps sparing MPIC costly tender offer
By Miguel R. Camus, Business Mirror | 11/09/2009 12:58 AM
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MANILA - The group of Philippine Long Distance Telephone Co. (PLDT) chairman Manuel V. Pangilinan may have found a way to avoid a costly tender offer or the buyout of minority shareholders of Manila Electric Co. (Meralco), based on the recent deal between Pangilinan and Lopez-owned First Philippine Holdings Corp. (FPHC).
Following the decision by FPHC’s board last week—when it turned down the offer of Henry Sy Jr.’s TriRatna Holdings Corp. for half or 6.7% of the Lopez family’s remaining Meralco shares—Pangilinan, through Metro Pacific Investments Corp. (MPIC), is now poised to take the stake.
The addition of the Lopez shares to the group’s current 34.7% in Meralco will push its ownership over the 35% threshold, which will trigger a tender offer under the Securities Regulation Code.
However, the deal being forged between the camp of Pangilinan and FPHC already contains certain “loopholes” which will allow the group to go around the corporate regulator’s rules, analysts said.
“The problem here is that none of them [San Miguel Corp. and PLDT group] have the capacity to buy everyone out. No one wants to do a tender offer and that is why they are looking for as many loopholes as possible,” said Joey Roxas, analyst and president of Eagle Equities Inc.
“And the selling parties are willing to help them,” he added in a telephone interview.
Jose Vistan, research head at AB Capital Securities Inc., said the interest of the Pangilinan group in Meralco is to defend its investment in PLDT, which? is partly owned by Pangilinan-led First Pacific Co. Ltd.
“But they may have to think about it more than twice if it is worth doing a tender offer,” he said in a phone interview, noting that the bidding has escalated prices to “speculative” levels.
Pangilinan, who recently said his group may seek an exemption from the tender offer, has already dodged this rule last week while negotiating for the acquisition for half of FPHC’s Meralco shares.
By structuring the agreement with FPHC through a multibillion-peso short-term loan in exchange for a call option—instead of pursuing a direct stock purchase—Metro Pacific was able to safely defer the transaction? to early January? until “midnight” of March 31 next year.
A call option grants a firm the right but not the obligation to buy another company’s stock during a specified period in the future.
More than this, the option’s March 31 deadline may allow Pangilinan’s group to fully avoid a tender offer.
Under the SRC rules, any person or group will be required to make a tender offer after acquiring 35% of shares in a listed corporation within a 12-month period.
At present, Pangilinan’s group controls 34.7% of Meralco through PLDT (20%) and Metro Pacific (14.7%).
In July, PLDT unit Pilipino Telephone Corp. acquired 20% of Meralco from FPHC. Before this, between early February and March 6 this year, the employee trust fund of PLDT and its unit New Gallant Ltd. bought 10.17% of Meralco, which was eventually transferred to Metro Pacific in October.
This means the Pangilinan group only has to exercise its call option after March 6 next year, which the agreement with FPHC allows.
“So if they buy the additional [6.7%] shares in Meralco after one year: that’s one loophole,” said Roxas.
Another analyst said that San Miguel can always make an offer for FPHC’s remaining Meralco shares, or tap one of its allies similar to TriRatna, where San Miguel president Ramon Ang used to be a shareholder. This can be a tool to prompt Pangilinan’s group to defend the other half of the Meralco stake by exercising its right of first refusal.
Last week, Metro Pacific exercised this same right when it matched TriRatna’s offer of P300 per share, jacking up the value of the 6.7% stake to P22.4 billion.
FPHC president Elpidio Ibañez, however, doused any near-term possibility of selling the remaining stake, saying the firm would like to maintain “a strategic presence in Meralco.” He said FPHC’s remaining 6.7% still grants it one board seat, down from the present two.
“So as of today it looks like there won’t be a tender offer [at all]. Even investors now feel and know that there will be no tender offer,” Roxas said. Meralco shares fell 12.22% to P194 on Friday’s close following the announcement by FPHC. A total of 1.05 million shares were traded valued at P213.45 million.
The prospect of a bidding war has made Meralco among the most volatile stocks this year, rising as high as P302.50 per share on July before dropping to P166 apiece on October.
Analysts remain divided on the effect of FPHC’s remaining stake. For his part, Vistan said it can still have an impact on share prices since neither San Miguel nor Pangilinan’s group has acquired a majority stake or even a significant lead in Meralco over the other.
Food-and-beverage giant San Miguel, which has been expanding into high-growth sectors like telecommunications, toll roads and energy generation, owns a direct 27% of Meralco, and through its allies control up to 41%.
If Metro Pacific fully exercises the call option by the deadline, the Pangilinan group will pay FPHC the full P22.4 billion and gain control of 41.4% of Meralco, making it the single-largest voting bloc in the power distributor.
“FPHC still has the remaining 6.7% stake which is up for grabs, and I wouldn’t be surprised if its price may be bidded up again,” Vistan said.
FPHC fell 3.45% to P56 on Friday while 7.59 million shares were traded worth P425.77 million. The stock had jumped significantly since TriRatna’s offer on October 30, touching a high of P58 per share, its most in a year, before FPHC ruled in favor of Metro Pacific.
Metro Pacific, which has interests in water services, toll roads, hospitals and port operations, lost 4.76% to end at P3 apiece. The firm told the stock exchange on Friday that it will borrow up to P12 billion worth of nine-year fixed-rate corporate notes in one or more tranches to fund the short-term loan to FPHC.
As part of the agreement to acquire half the FPHC stake, Metro Pacific said it will grant the Lopez firm a short-term loan of P11.2 billion, to mature in March 31 next year. Ibañez said the funds will be mainly used to pay a portion of its P12- billion debt.
The loan will be secured by Meralco and First Gen Corp. shares of FPHC.
Metro Pacific stressed that its rights under the call option are independent from its rights as a lender to FPHC.
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