If you can’t beat them, buy them

This must be what’s in the minds of those who heard the news that the Aboitiz Group is acquiring full ownership of the developer and operator of the Mactan Cebu International Airport (MCIA) by the end of 2024.

I, too, can’t help thinking about this. Isn’t it all too common for the Big Boys of Philippine business to gobble up companies before they grow too big? Just look at your friendly neighborhood grocery store. Most of the small grocery stores are gone, acquired by giant supermarket operators.

However, in the case of the Aboitiz Group, this is perhaps not the usual case of “If you can’t beat them, buy them.”

While it’s true that the Aboitizes tried to bid for the Cebu airport in 2013, but lost to Megawide, I view its current move to take full ownership of the airport operator as a Cebu play.

The Cebu-based conglomerate, after all, has deep roots in the Queen City of the South, and with Cebu’s economic growth potential now stronger than ever, it’s a wise move for the Aboitizes to take another shot at the international gateway.

Note that the Aboitiz Group has strong Cebu operations and its infrastructure arm, Aboitiz InfraCapital (AIC) operates the 63-hectare Mactan Economic Zone 2 Estate in Lapu-Lapu City, as well as the 540-hectare West Cebu Estate in Balamban.

It’s therefore no surprise that the Aboitiz Group would vie for the airport once more.

Thus, Aboitiz InfraCapital will acquire shares in GMR-Megawide Cebu Airport Corp. (GMCAC), a joint venture between Megawide and GMR Airports International BV (GAIBV), which maintains the 25-year concession to develop, operate, and maintain the MCIA.

Initially, AIC is spending P9.5 billion to purchase primary and secondary shares from Megawide and GAIBV to own 33.3 percent minus one share in GMCAC. Megawide and GAIBV would then issue P15.5 billion worth of exchangeable notes to AIC.

When the notes mature on Oct. 30, 2024, AIC would trade them for the remaining 66.6 percent plus one stake in GMCAC, according to separate disclosures of the involved parties to the Philippine Stock Exchange (PSE).

Why did Megawide agree to sell?

Megawide chairman Ed Saavedra said it was not a decision that happened overnight.

The company received an unsolicited offer from the Aboitiz Group in January this year. At the time, there was no telling yet when COVID-19 would end and when the travel business would recover.

There was also no telling yet who would be the country’s next president or how the political climate would be. Or more importantly, there was no telling yet back then that sometime in the future, Aboitiz honcho Sabin Aboitiz would be popping wine bottles with president-elect Marcos soon after the May 9 elections.

This means that Ed and his team and their Bangalore-based partner, could only base their decision on the merits of the offer, which included an attractive valuation deemed fair to both parties.

Still, it was not an easy thing to decide on.

Ed spent several nights pondering on it, he said, weighing the advice given by financial advisors, fellow shareholders, the market, etc. etc.

In the end, the 48-year old Ed, a Zamboanga son who graduated with a civil engineering degree from De La Salle University, did a cost-benefit matrix. What did his matrix contain? I don’t know for sure. Ed didn’t go into the details.

But what really helped him decide is when he reflected on Megawide’s growth path and his own individual journey as a businessman.

“I’m at the prime of my life,” he said. What this meant was he felt he didn’t really have time to wait for years for the travel business to recover and would rather cash-in now, invest the money in other growth areas and help Megawide achieve its growth potential.

New direction

With a bigger war chest, Megawide has set a new direction to diversify into more resilient, high-growth, and scalable opportunities to anchor its long-term and sustainable growth agenda, having learned the hard lessons during the pandemic.

“We are exploring opportunities in high growth, crisis-resilient and scalable businesses that will continue to add value to maximize our core strengths and generate new platforms for growth,” Megawide’s Louie Ferrer also said.

Ed and Louie said the new projects include power, affordable housing, as well as transportation, social and digital infrastructure.

Will they go back to the airport business?

It depends on the general direction of the new administration, including the modalities, whether unsolicited or not, they said.

The Aboitiz growth story

For the Aboitiz Group, as I said, I view this bold move as a major Cebu play. It would also give the conglomerate the experience of running a provincial airport to prepare for its long-term plan to operate provincial airports across the country.

Weighing all these considerations, I believe it’s a win-win for both groups. For Megawide, it’s worth noting, too, that it’s the only Filipino company that has built solid experience in world-class airport infrastructure, as well as operations.

Of course, we hope to see a continuation of that, whether the airport operator is one of the big boys or just an audacious young boy with pompadour hair.

Iris Gonzales’ email address is [email protected].

Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com