Piltel stockholders OK Meralco stocks purchase

MANILA, Philippines - Pilipino Telephone Co. (Piltel) approved yesterday the acquisition of a 20-percent stake in the Manila Electric Co. (Meralco) for P20.07 billion, as well as in Piltel’s restructuring from a telecommunications service provider to a holding company for the Meralco shares.

Piltel chairman Manuel V. Pangilinan said bulk of the P20-billion price tag for the purchase will be internally generated, with only a small amount coming from borrowings. Piltel has already advanced P2 billion of the purchase price. “We intend to close the transaction on July 14,” he said.

The shareholders also approved the sale by Piltel for P11.5 billion of its telecommunications business to parent firm Smart Communications. Of the P11.5 billion to be paid in cash and sourced from Smart’s corporate funds, P8 billion will be for the sale of the Piltel trademark; P1.2 billion for the transfer of Piltel’s 16.6 million subscriber base to Smart; and P2.3 billion for the sale of its fixed assets.

Piltel will acquire 223 million voting shares in Meralco from the Lopez Group for around P90 per share. Together with the PLDT Beneficial Trust Fund’s 10-percent stake in Meralco, the PLDT Group’s shareholdings in Meralco amount to 30.2 percent. PLDT’s parent company, the Hong Kong-based First Pacific Co., also has shares in Meralco.

PLDT BTF said it intends to transfer its Meralco stake to First Pacific’s local unit Metro Pacific Investments Corp. (MPIC). Since the PLDT Group has put a 20-percent cap on its shareholdings in Meralco, Pangilinan said any additional purchases will have to be made by MPIC.

Pangilinan pointed out that the P90 per share purchase price was based on their own assessment of the intrinsic value of Meralco, the latter’s prospects as a power company and the synergies that could arise over the long term, as well as the dynamics with the shares’ owners, the Lopez holding firm First Philippine Holdings. “We are acquiring the shares at that price both for defensive and affirmative reasons,” he said.

Among the synergies identified between PLDT and Meralco, Pangilinan pointed out, is the possibility of Meralco tapping into PLDT’s experience on prepaid and wireless billing.

He likewise revealed Meralco will soon test in the Manila area the possibility of providing broadband service over power lines.

Pangilinan said PLDT and Meralco are creating teams that would explore each area of synergy

“The PLDT Group could explore in partnership with Meralco the possibility of offering broadband services over power lines. For its part, Meralco can tap into the PLDT Group’s considerable experience in the prepaid and mobile commerce fronts to offer new services such as prepaid electricity as well as wireless bill payments and meter readings,” he told Piltel’s shareholders.

Pangilinan also stressed that PLDT wants to ensure that its wires, which are in 546,000 of Meralco’s poles in Metro Manila and five outlying provinces, are strong. “It will cost P8 billion to replace those poles and at least three years to obtain the rights,” he said.

At Monday’s P143 per share closing price for Meralco, Pangilinan said the P20-billion investment already gained P50 per share or around P11 billion, ‘although this is a paper gain.”

To provide the minority shareholders of Piltel holding a total of 7.19-percent stake an exit as the company ceases to be a telco provider, Smart has offered to acquire their shares at P8.50 each. An independent committee created by the Piltel board as well as independent financial advisor CLSA Exchange Capital have concluded that the terms of the tender offer are “fair.”

Pangilinan also emphasized that they have not made up their minds on the planned delisting of Piltel once Smart consolidates its stake. “Our focus is on the Meralco investment by mid-July. But those who will not avail of the tender offer face the prospects of delisting,” he said.

Piltel informed its shareholders that in the event that the company’s public float becomes very minimal, there is a possibility that its common shares would not be actively traded or the trading volume of its common shares would fall below the trading volume requirement of the Philippine Stock Exchange. In such case, Piltel could be subject to an involuntary delisting proceeding.