PLDT gobbles up Digitel for P69.2B

MANILA, Philippines -  Telecommunications leader Philippine Long Distance Telephone Co. (PLDT) has acquired a majority stake in Gokongwei-owned Digital Telecommunications Philippines Inc. (Digitel) for P69.2 billion, with an option to acquire 100 percent through the buyout of minority shareholders, officials of the two companies said yesterday.

Digitel owns 100 percent of Digitel Mobile Philippines Inc. which markets the Sun Cellular brand. It also has a substantial fixed line and broadband business.

PLDT said the purchase price will be settled through the issuance of “one new PLDT share for every P2,500 consideration payable for the assets.”

 Of the P69.2 billion, about P3.28 billion will be for Digitel common shares representing 51.55 percent of total acquired from Digitel’s parent JG Summit and other parties; P18.6 billion for the zero-coupon convertible bonds issued by Digitel and its subsidiaries to the JG Summit Group which will be converted into 18.6 billion Digitel shares by June 30; and inter-company advances of P34.1 billion made by the JG Summit Group and certain parties to Digitel and its subsidiaries.

With PLDT issuing new shares valued at P2,500 per share as part of the consideration, there will be some dilution in the equity stake of PLDT’s major shareholders. From 26 percent, the Hong Kong conglomerate First Pacific Group will end up owning 22.4 percent while Japan’s NTT Group’s stake will be reduced to over 18 percent from 21 percent. The cash component of the consideration will come from First Pacific and NTT.

In turn, JG Summit will end up owning about 12.8 percent of PLDT. The sale will also entitle JG Summit to one seat in the PLDT board, to be occupied by JG Summit chairman and CEO James Go. The entire transaction is expected close by June 30, 2011.

Revealing that they have been “courting” JG Summit for two years, PLDT chairman Manuel V. Pangilinan said the transaction addresses the need to undertake major changes in the face of the changing dynamics of the telecom industry, including the anticipated explosion in the demand for data services.

 “Though this initiative alters the country’s telecom landscape, we expect competition within the industry to remain very robust given that other operators, including new entrants, are formidable and well-funded. And as I have alluded to in previous statements, we face growing competition not just from other telcos but also from the so-called “over the top” or OTT service providers that offer social networking, instant messaging and VoIP services,” he pointed out.

He also said in an interview that the partnership can open doors for future businesses between the two groups, even between Metro Pacific Investments Corp. (MPIC) and JG Summit, both of which are into power.

For his part, Go emphasized that in making this decision, JG Summit went through a rigorous review of its strategic options and concluded that PLDT is the best partner for all their stakeholders. “Digitel subscribers should reap benefits from PLDT’s sizeable infrastructure and leading-edge platforms. The transaction

should also bring significant value to JG Summit’s shareholders without relinquishing our

participation in the Philippine telecommunications industry,” he said.

He also revealed that the cash proceeds from the sale may be used for the group’s plan to participate in the government’s public-private partnership (PPP) projects, particularly those dealing with power and airports.

Meanwhile, JG Summit president Lance Gokongwei admitted that it was a difficult decision to make on the part of their group but in the end, “we concluded that PLDT is the best partner for all our stakeholders. It will also allow us to continue participating in the telco industry.”

As this developed, Globe Telecom president Ernest Cu said the combination of PLDT and Digitel in the mobile, fixed line and broadband space will not fundamentally change their own strategy. “We stand ready to compete, and to defend and grow our market share. This industry has always been intensely competitive, and we have been a strong challenger to a dominant incumbent all this time. We will continue to focus on delivering relevant products to our retail and corporate customers, providing differentiated customer service, and enhancing our network to deliver the best experience possible to our subscribers,” he stressed.

Meanwhile, San Miguel Corp. (SMC) president Ramon Ang, in a text message, said: “I am happy for JG Summit and I think it is good for us and Globe.” SMC owns a controlling stake in Liberty Telecom and Eastern Telecoms, and 100 percent of Bell Telecoms.

PLDT intends to conduct a tender offer for all the remaining Digitel common shares held by the public representing about 48.45 percent of the issued common stock of Digitel. Under the mandatory tender offer, it is expected that PLDT will offer to purchase Digitel shares at the price of P1.60 per Digitel share, which will be paid in the form of either PLDT shares issued at P2,500 per share or cash, at the option of the Digitel shareholder.

The contemplated tender offer price will be equivalent to the fully diluted price per share of

Digitel, assuming full conversion of the convertible bonds. Should all minority shareholders of

Digitel accept the offer by PLDT, PLDT will issue a total of 29.65 million new PLDT shares for

the acquisition of the assets and of the remaining Digitel shares held by the minority

shareholders under the tender offer, representing approximately 13.7 percent of the enlarged issued share capital of PLDT on a fully diluted basis.

Assuming full acceptance by the minorities of Digitel, the total transaction consideration would amount to P74.1 billion.

PLDT said its investment in Digitel is expected to achieve substantial benefits for the consumers, the general public, and the shareholders of PLDT and JG Summit.

“It will leverage the combined expertise of the PLDT Group and Digitel to create a more capable telecommunications company which will be better-positioned to provide higher quality and even more affordable services to fixed line, wireless, and broadband subscribers addressing a wide range of consumer demand - from voice to SMS to data and Internet and video services,” PLDT president Napoleon Nazareno said.

Meanwhile, Pangilinan stressed that PLDT intends to keep the mobile operations of Digitel separate and intact, and to maintain and capitalize on Sun Cellular’s operations and significant brand equity to continue serving specific segments of the market, especially those who prefer “unlimited” type of services.

PLDT noted that Digitel’s fixed line operations can complement its own in terms of both geographic and population reach, while adding around 450,000 subscribers to PLDT’s current base of 1.8 million subscribers. “PLDT can quickly provide enhanced broadband services in Digitel’s service areas. Digitel’s subscribers are also expected to benefit from PLDT’s extensive infrastructure, particularly its nationwide fiber optic network and its international cable and satellite facilities,” it said.