CA restrains SEC in tender offer rule dispute

The Court of Appeals has ordered the Securities and Exchange Commission (SEC) to stop implementing a directive requiring the holding company that bought into Union Cement Corp. to buy the remaining shares held by minority investors.

The temporary restraining order (TRO), effective for a period of 60 days from notice, is in response to the petition of Cemco Holdings Inc. to nullify the SEC order requiring the latter to make a tender offer to the remaining minority shareholders of Union Cement.

The TRO was issued by the CA "pending resolution of the application for preliminary injunction and in order to prevent irreparable injury to the petitioner before the mater can be heard on notice."

In the same order, the CA has directed the SEC and the National Life Insurance Co. of the Philippines to file their respective comments within 10 days from receipt of order. National Life, which holds 0.25 percent or about 15.8 million shares of Union Cement, has been lobbying for the application of the mandatory tender offer rule on the sale of Union Cement.

In its petition, Cemco claimed that the SEC has committed errors of judgment in its findings and/or grave abuse of discretion. "The errors of jurisdiction pertain to the SEC’s having exceeded the purely investigatory nature of its function in respect of the case by proceeding to adjudicate upon the parties‚ rights and obligations, and its having thereby issued a remedy outside of its statutory powers."

"Cemco would be held liable on a baseless claim and would be compelled to make a tender offer for and to purchase shares of stock which are entirely different from the shares it actually wishes to acquire in violation of the clear and explicit language of the SRC (Securities Regulation Code) and the constitutional guarantee of due process," Cemco said

Cemco is a unit of Holderfin BV, an affiliate of the Switzerland-based cement conglomerate Holcim Ltd., which in turn owns a 40-percent stake in Cemco Holdings. It would need P6 billion to buy the remaining shareholdings of Union Cement minority investors.

Cemco said the SEC’s order creates "confusion" and could affect future investments by foreign investors.

The SEC order was a reversal of an earlier ruling issued by the SEC’s Corporate Finance Department that the transaction is not covered by the agency’s mandatory tender offer rule since it was not made directly but through a holding company that is not listed.

Holding firm Bacnotan Consolidated Industries Inc. (BCII), the flagship company of the Phinma Group, sold to Cemco Holdings its 21.3-percent stake in Union Cement Holdings Corp. (UCHC), one of the major shareholders of UCC. Atlas Cement Corp., a 53-percent subsidiary of BCII, also sold its 29.69-percent shareholdings in Union Cement.

The total transaction was valued at $214 million, with $89 million for the direct holdings of BCII and $125 million for Atlas’ stake.

The CFD had exempted the transaction as Cemco acquired Union Cement Holdings’ stake and not a direct stake in Holcim. As such, the CFD had reasoned that the purchase will not raise Cemco’s direct stake in Holcim to 35 percent – the level that triggers the tender offer rule.

Before the purchase in late 2004, Cemco had a 17 percent direct stake in Holcim and a nine percent stake in UCHC, which held a 60.51 percent stake in Holcim.

Cemco raised its stake in UCHC to 60 percent by acquiring the combined 51 percent stake of (BCII) and Atlas for $214 million.

However, the Commission en banc, in its order, said that while Cemco bought UCHC and not Union Cement shares, the transaction should be covered by the tender offer rule because it effectively gives Cemco control of Holcim.