ISM bucks Smart bid to stop sale of Aerocom stake in ETPI

Attempts by Smart Communications Inc. to stop the sale by Aerocom Investors and Managers of its 17.7-percent stake in Eastern Telecommunications Phils. Inc. (ETPI) to publicly listed ISM Communications Corp., met resistance from the latter which insists that Smart does not have a right of first refusal over the sale.

"Smart does not have a right of first refusal over this transaction," ISM president Eric Recto told The STAR.

Smart, the country’s biggest wireless service provider, earlier said Aerocom must give Smart and other ETPI stockholders the right of first refusal over the sale of its stake in ETPI, a right embodied in the latter’s articles of incorporation.

"Smart asserts its right of first refusal to the proposed sale by Aerocom of its 17.7-percent equity interest in ETPI to the Ongpin group," Rogelio Quevedo, head of Smart’s legal and carrier business group said. The PLDT cellular subsidiary owns 9.8-percent equity interest in ETPI. Forty percent is owned by Australian Gigahertz Network International while 18 percent is owned by Pablo Lobregat (Aerocom group). The remainder consists of sequestered shares now under the Presidential Commission on Good Government (PCGG).

The sale involved 4.6 million ETPI shares which will be transferred by Aerocom to ISM Communications, a company formed by former Trade Minister Roberto Ongpin, in exchange for 6.8 billion common shares of the latter.

The share-swap agreement provides that ISM will issue 6.8 billion new common shares which shall be taken from an increase in its authorized capital stock which has recently been approved by the shareholders.

Quevedo cited Article 10 of ETPI’s amended articles of incorporation, which states that the right of first refusal applies to any sale, transfer, disposition or assignment of shares by any stockholder of ETPI except when such sale, transfer, disposition or assignment is done between or among the incorporators of ETPI or corporations controlled by such incorporators. "Since none of the exceptions apply, Smart and all other ETPI stockholders should be given the option to exercise the right of first refusal over the reported sale by Aerocom of its shares to the Ongpin group," he said.

But ISM noted that since the transaction between Aerocom and ISM over the subject ETPI shares does not involve a cash offer, the provisions of ETPI’s articles of incorporation on the right of first refusal of existing ETPI shareholders do not apply. ISM general counsel Severino Sumulong, in response to a letter sent to ETPI by Picazo, Buyco, Tan, Fider and Santos, law office regarding the purported right of first refusal of Smart, pointed out that said Article 10 clearly shows that it shall apply only to a cash sale of ETPI shares wherein the other stockholders of record are entitled to purchase the offered stock pro rata based upon terms and conditions specified based upon a "firm, bona fide written cash offer from a bona fide purchaser."

Sumulong also noted that under the same article, the purchasing stockholder who decides to exercise his right of first refusal is required to transmit to the corporation with his acceptance cash, or a certified cash, or a certified check drawn on a Philippine bank. "Consequently, an exchange and transfer of shares which do not involve any cash payments cannot be considered as within the purview of Article 10 of ETPI’s articles of incorporation."

Recto earlier said that the sale marks the beginning of ISM’s transformation into a telecommunications company, which has been on hold pending the completion of the acquisition of assets necessary for its business.

Recto added that there are other related opportunities which ISM is currently working on. ISM has revealed that it is in talks with the Australian group that controls 40 percent of ETPI for the acquisition of said interest.

Because ETPI does not have a cellular franchise, ISM has reportedly acquired a stake in Express Telecommunications (Extelcom) which has an authority from the National Telecommunications Commission (NTC) to engage in cellular mobile telephone service (CMTS). Other holders of CMTS license are Smart, Globe Telecom, Pilipino Telephone Inc. (Piltel), Digitel Mobile (Sun Cellular), and Bayan Telecommunications Inc. (Bayantel).