MANILA - Manuel V. Pangilinan, one of the Philippines' most powerful corporate figures, looks to have gained the upper hand in the fight to own Manila Electric Co. (Meralco), ensuring the utility's shares will keep rising as the takeover tussle continues.

The closely followed battle for control over Meralco, the Philippines' largest power retailer holding an extensive fibre optic network, pits Pangilinan, chairman of PLDT, against Ramon Ang, president of San Miguel Corp.

Pangilinan, the chairman of Metro Pacific Investments Corp., recently bought half the 13.4% Meralco stake held by First Philippine Holdings Corp.

With the $471 million buy, Pangilinan upped his shares in the company and allowed his allies, the Lopez business clan who own First Holdings, to keep a hand in the business they have been running for decades.

Pangilinan is not ready to stop buying and neither is Ang's group. Analysts say the takeover fight will spill over to the open market and persist until a shareholder group ends up with at least 50.1% of Meralco.

"The freefloat is less than 10%, I'm sure both of them are looking for whoever is holding those shares," said an analyst from a foreign equities house who asked for anonymity for lack of authority to speak to the media.

"One thing is for sure, until somebody gets to 51%, Meralco's share price will be high, because it will be accumulated," the analyst said.

Meralco shares, down nearly 3% on Monday to underperform the broader market's 0.76% decline, have risen nearly 240% so far this year and is up 7.5% this month.

Matching bid

The latest deal by Pangilinan's Metro Pacific was designed to match a rival proposal submitted days earlier by Henry Sy Jr., son and namesake of the country's richest man and business partner of San Miguel's Ang, who offered to buy the Lopez's entire 13.4% Meralco stake at P300 ($6.4) per share.

The terms of Metro Pacific's transaction with First Holdings ensures it will end up owning the Lopez family' remaining stake if and when they decide to sell out anytime in the next three years. But even if Pangilinan buys all of the Lopez clan's stake, his group would end up with only 48% of the utility.

Sy Jr.'s surprise entry had led to frantic trading in the utility, sending it to a two-week high early this month.

Both Sy Jr. and Ang are considered hostile buyers in the utility, with the latter aiming to use Meralco's fibre optic backbone to support San Miguel's entry into telecommunications, a venture that will compete head to head with PLDT.

The group of Sy Jr. gave the Lopez clan a cheque covering a portion of his $940 million bid, with the rest of the payment to be delivered at a later date. The Lopez group declined the cheque and the offer.

For his successful bid, Pangilinan's Metro Pacific offered some money via a P11.2-billion loan to First Holdings with 5% interest per annum maturing on the same day the entire deal is completed on March 31, 2010.

US merger advisory firm Evercore Partners Inc. was First Holdings' adviser to the deal, its first in Asia.

The deal required a cash component because the Lopez clan needs P10 billion to invest in a solar power project and subscribe to a rights issue at its geothermal arm before the year ends. It also wants to repay in advance some dollar loans.

"PLDT's was a defensive move because the (Lopez) shares already vote for them, now they have to pay for them," said an industry source familiar with the deal.

The sale price, at P300 per share, offered a 36% market premium, but it was reasonable to both parties because their initial purchases were at P90 apiece. This meant their average acquisition cost in Meralco was still below current market price.

"For a new buyer, anything above P200 is stupid," the industry source said. "From the very beginning, it was obvious, only 2 groups will buy this (Lopez stake)."