The swap offer involves 1.6 BDO shares for every Equitable share.
With Equitable’s 727 million shares and BDO shares closing at P35.50, Equitable stockholders would get the equivalent of P56.80 per share, lower than yesterday’s P63 closing price.
"The valuation was based on market study and we feel that the exercise would result in a bigger, stronger, and better capitalized bank with combined resources estimated at P500 billion," BDO president and chief executive officer Nestor V. Tan said in a briefing yesterday.
Equitable had P327 billion of assets at the end of the third quarter while BDO had P212 billion. Together, the two banks would close the gap with the country’s top two lenders, Metropolitan Bank and Trust Co. and Bank of the Philippine Islands, which each had more than P550 billion of assets.
"The combined institution is expected to yield substantial synergy in terms of cost savings and revenue enhancement, as well as benefit from an upgrade in its credit standing. The merged institution will move up to large capitalized category which is defined as companies with market capitalization of at least $700 million," Tan said.
Tan said should the Equitable board accept the offer, all existing share holdings will be diluted as the SM Group’s stake would increase. The offer is good until Jan. 31 only.
The SM Group already controls close to 50 percent of the total common shares of Equitable, making it the bank’s single biggest stakeholder. The total shares held is a result of the acquisition of the 24-percent stake owned by founding Go family and common shares acquired across the board at the Philippine Stock Exchange (PSE).
Meanwhile, the group of state pension funds Social Security System (SSS) and the Government Service and Insurance System (GSIS), and the Trans Middle-East Phil-Equities Inc. (TMEQ) controls a combined 46 percent stake in Equitable. SSS holds 26 percent, GSIS 12 percent, and TMEQ eight percent.
SSS president and chief executive officer Corazon dela Paz said the pension fund still has to study the offer.
"We will still have to study the offer, look at the options, and review the credibility of their valuation (l.6 to one share offer)," De la Paz said.
GSIS president and general manager Winston Garcia on the other hand, said he would reject the offer if it will result in the dilution of their holdings. But he said that it still too early to make any firm commitments.
"We will look at the benefits, merits and demerits of the offer, which I think was premature," Garcia added.
However, analysts said that it is to the advantage of government if they approved the share swap. Henry Sy, who spent 60 years building a shoe store into the nation’s biggest retailing and shopping mall companies, has become a top banker in the last five years, as BDO acquired four other lenders. Equitable would be the biggest acquisition and may boost confidence in BDO’s prospects, said Jerome Gonzalez, who helps manage $15 million at PhilEquity Fund.
"BDO could be rerated to the level of Bank of Philippine Islands, which is considered the industry leader," said Gonzalez. "This could push up the value of Banco de Oro."
It may also pressure BPI, Metrobank and other lenders to pursue acquisitions of their own, he said.
Sy, who already owns 25 percent of Equitable mostly through BDO, and the other major stockholders figured in a dispute last year when they fought the family of then chairman Antonio Go for control at a stockholders meeting in July. The group said they controlled 55 percent of Equitable.
The dispute ended after Sy bought the Go family’s 25 percent for P56.50 a share or about P10 billion.
Sy and his family are worth $1.9 billion, according to Forbes Magazine, making them the nation’s richest family. The family has been trying to buy Equitable since January 2004, when it announced an agreement to buy the 26 percent stake of one of SSS for about P8 billion. A court suspended that agreement after a group that included politicians and pension fund members questioned its price and terms. – with Bloomberg