GMA Network mulls P5-B IPO in bid to regain No. 1 slot

Following the botched PLDT deal and with no other buyer in sight, the country’s second largest broadcasting company may turn to the stock market and go into an initial public offering (IPO) in order to raise as much as P5 billion to finance future expansion and infrastructure development programs.

Such plan forms part of GMA Network Inc.’s long-term objective of recapturing the number one position in the broadcasting industry both in terms of ratings and revenues which it held during the ’70s to the mid ’80s. Proceeds from the IPO will be used to beef up infrastructure, including a full migration from analog to digital, especially in the provinces.

GMA gave industry leader ABS-CBN a big jolt when the former signed last February 2001 a memorandum of understanding with telecommunications giant Philippine Long Distance Telephone Co. (PLDT) that would have seen the latter pumping in around P8 billion in exchange for 67 percent of GMA.

In an era of multi-media convergence, a partnership between PLDT and GMA could have created a formidable team, with the former’s financial and technological muscle and the latter’s own strengths. The announcement also came at a time when the Lopez group of ABS-CBN was having financial difficulties with almost all its other subsidiaries like BayanTel, SkyCable, and Maynilad.

Unfortunately, the PLDT group pulled out of the deal before the year ended because it had to first take care of its maturing debt obligations. But the PLDT is willing to revisit the whole thing in a year or two when it has taken care of its debt payments.

"We have to stress that GMA is not for sale. We have had offers to buy in the past and we did not consider them until PLDT’s offer came that valued the company at its highest at P14.58 billion. Since PLDT is no longer buying, we have to look at the alternatives," GMA president and chief executive officer Felipe Gozon said in an interview.

Gozon stressed that because GMA has been doing well, banks have been approaching to offer their credit facilities. And right now, the company has yet to fully use up its P1.9 billion-loan arranged in 2000 and to draw around P500-million worth of existing credit lines with other commercial banks.

However, the GMA top executive believes that the company can raise the biggest amount from the IPO market. "And equity is always cheaper than debt," he said.

He says that while the percentages have yet to be determined, they are considering offering both primary (proceeds go to the company) and secondary shares, the proceeds of which go will to the owners. The Jimenez and Duavit families own 35 percent each of GMA and Gozon, 30 percent.

"Since the market is still not good and an economic recovery expected to happen only starting the second half of this year, we might go into IPO in 2002 at the earliest. But we are ready to do it anytime since many of the paper requirements are already here," Gozon explained.

He adds that GMA is not closed to the idea of PLDT and GMA going back to the negotiating table. "We (with PLDT) will have to start from scratch. As for other buyers, like any businessman, if the price is right, we will consider the offer. But again, we are not actively selling," he said.

Overvalued?

PLDT valued GMA at P14.58 billion for 100 percent of the company based largely on earnings before interest, taxes, depreciation and amortization (EBITDA) and also because of its strategic fit into PLDT president Manuel V. Pangilinan’s convergence strategy. A PLDT-GMA deal would have resulted in a perfect merger of content (from GMA) and transportation (PLDT’s network).

But analysts doubt whether GMA can get P5 billion from an IPO. "Given that the company’s EBITDA for end-2001 will be around P1.3 billion, the market will probably value GMA at three times its EBITDA or P3 to P4 billion for 100 percent of the company. (Industry leader ABS-CBN is valued at around six to eight times its EBITDA). Depending on what percent of the company they will list, probably 15 to 20 percent, they could raise a few hundreds of millions," an analysts told The STAR.

The value could go significantly lower if the share prices are computed based on a price-earnings ratio.

"If GMA shares are valued low, then the company could get stuck on this value forever. And PLDT could just go to the market and buy GMA shares for a song," the analyst added.

Contrary to what people may think, running a broadcasting company is really not that profitable. Out of an estimated gross income of P3.2 billion for the whole of 2001 (a 15-percent increase from 2000), net income of GMA for the year could reach only P250 to P300 million.

And sources say that while net income could grow 50 to 100 percent last year as against 2000, this is not something to rejoice about. GMA’s net income in November 2001 compared to the previous year is expected to be down by as much as 80 percent while operating expenses would be up by around 40 percent, and EBITDA for the month down 40 percent compared to the same period in 2000. December 2001 as against December 2000 could be a net loss.

This added to the fact that from a 4,600-percent growth in net income as of end-July 2001, the figure could drop to 100 percent by year-end. Gozon attributes this phenomena to a big drop in third quarter income. "The growth will go down slightly in October 2001 and substantially in November," Gozon told The STAR.

There are some, however, who believe that the 4,600-percent growth in the first half could have something to do with the fact that PLDT was valuing the company at that time and when the company may have been made to appear to look good on paper to get a higher valuation. PLDT should have been running GMA towards the second half of 2001.

Optimistic

Gozon remains optimistic of the future. He expects a substantial growth in 2002, of maintaining a 50- to 100-percent growth in net income and a 10 to 15-percent increase in gross revenues compared to 2001.

With advertising revenues projected to be flat this year, he says GMA will manage its costs although some operating expenses cannot be postponed. This includes purchasing one or two SNG units worth millions of pesos each that will allow the company to transmit news live via satellite even from the remotest areas as well as producing local programs that are more expensive than importing foreign ones.

GMA also plans to invest substantially in uplinks to allow it to expand its reach internationally via satellite. "By investing on uplinks, we will save on the rentals that we pay for transponder space," Gozon said.

The company has also temporarily closed its UHF channel 27 to conserve resources while another subsidiary, GMA Films, has not had any projects recently.

Gozon also believes that its new media unit will figure prominently in the near future as the company enters the digital age.