SM allots P44B for EPCIB buyout

SM Investments Corp. (SMIC), the listed investment holding company of retail tycoon Henry Sy, said it has enough resources to buy out other shareholders of Equitable PCIBank and that its solid financial position should speak for itself.

SMIC executive vice-president Jose Sio said the acquisition of EPCIBank, which is estimated to amount to P44.15 billion, would come from a combination of internally generated funds, sale of assets and borrowings.

In a letter to the Securities and Exchange Commission, SMIC said comfort letters will be issued by at least three foreign banks vouching for the SM Group’s strong financial capability to fund the acquisition of EPCIBank.

SMIC added it already has cash available for the payment of the first installment on closing date of the transaction.

The company has offered to buy out other shareholders of EPCIBank with a tender offer of P92 per share for a total cost of P44.15 billion, payable over a two-year period. Drawdowns are scheduled on June 2, 2007, Feb. 2, 2008, and Oct. 2, 2008.

SMIC has appointed Citibank N.A. as the escrow agent to hold the subject shares in escrow until full payment.

Under the terms of the tender offer, it is provided that on the cross date, the bidder shall obtain full and valid title to the tendered shares, free and clear from any interests, claims and encumbrances; and fully exercise all rights and privileges arising from ownership of such tendered shares.

An SEC official said the commission has no objection to the proposed transaction and on how the SM group intends to fund its planned acquisition, as long as all necessary information are disclosed to the public.

"We’re not imposing what they have to do. We just want to make sure that all information pertaining to the proposed transaction are available to the investing public to help them make an informed decision making," the SEC official said.

The SM Group, which includes Banco De Oro (BDO), owns the single biggest stake in EPCIBank at 34 percent.

So far, only EBC Investments Inc. has accepted the group’s offer to acquire its 78.81 million shares, representing a 10.8-percent stake in EPCIBank, for P7.25 billion.

The Government Service Insurance System (GSIS) may also sell out its EPCIBank shares to the Sy group as it deemed the P92 per share offer price as acceptable.

The acquisition of a controlling block is expected to result in the eventual merger of EPCIBank with BDO.

Aside from BDO and GSIS, other major shareholders of EPCIBank are state pension fund Social Security System, which owns 26.6 percent; and the Romualdez family’s Trans-Middle East Philippines Equities, which holds 7.1 percent.

The SM Group’s tender offer was in line with efforts to infuse more funds in EPCIBank to help meet the bank’s capital requirements and prepare it for the implementation of Basel II and the new reporting standards.

The group said it was also keeping its option to merge EPCIBank with another bank to further strengthen the bank’s balance sheet. Such a merger will, however, be subject to the approval of other EPCIBank shareholders and regulators.

The tender offer, which commenced last Aug. 31, will end on Sept. 28, 2006. The transaction is expected to be completed on Oct. 2.

According to stock brokerage firm Macquarie Securities, BDO plans to proceed quickly with the merger should the offer be accepted.

A merger between BDO and EPCIBank will create a financial institution that will likely overtake Bank of the Philippine Islands as the country’s second largest bank in terms of assets. Metropolitan Bank & Trust Co. remains the largest in asset terms, but its lead could come under threat as a result of the industry consolidation.

Since its listing in May 2002, BDO has grown steadily, partly through the acquisition of small bank operations, such as the local branches of Singapore’s United Overseas Bank Ltd. and Banco Santander Central Hispano SA of Spain.

The merger will give the SM Group access to EPCIBank’s 227 remittance centers in cities with large Filipino populations, such as San Francisco and Los Angeles. BDO has one remittance center in Hong Kong and receives remittances through alliances with companies outside the Philippines.

BDO’s remittance business has helped boost sales at SM malls. In turn, the bank uses its branches at the malls to lure and keep clients.