MPI announces tender offer and files for delisting
Metro Pacific Investments [MPI 4.26 4.4%; 336% avgVol] [link], the diversified conglomerate owned by the Salim family, GT Capital [GTCAP 480.00 3.9%; 245% avgVol], and Mitsui, and managed by Manny V. Pangilinan, disclosed that its stock will become the subject of a tender offer by a consortium of MPI’s significant shareholders to acquire a maximum of 10.5 billion shares of MPI at a price of P4.63/share (P48.7 billion total). The stated goal of the tender offer is to obtain enough shares to delist MPI from the PSE and take the company private. The tender offer is scheduled to run from “late May to late June”. If successful, MPI’s public float would fall below the PSE’s minimum and it will be voluntarily delisted from the exchange.
The goal: The consortium tender offer covers MPI’s entire public float. For MPI to delist, more than 66.6% of the outstanding shares must vote in favor of the delisting, with no more than 10% of outstanding shares voting against the delisting. The goal of the consortium here is to obtain enough shares to push their combined ownership level above 90% to defeat any possible rejection of the delisting measure by shareholders.
The price: The P4.63/share price is naturally getting a lot of attention. That price is an 8% premium over MPI’s Wednesday closing price of P4.26/share, a 13% premium over MPI’s price on January 20 when Bilyonaryo broke the rumor of the potential delisting, and 47% premium versus MPI’s 52-week low of P3.14/share. The controversy comes from the fact that the price is 50% below MPI’s book value of P6.97/share.
What’s book value? Book value is the difference between a company’s assets and its liabilities. It’s a crude, back-of-the-envelope assessment of what a company might be worth if it were chopped up and sold, piece by piece, as part of some liquidation or dissolution.
How does a tender offer work? It’s basically like a standing offer by the consortium to buy any and all shares of MPI, for a set price, during a specific window of time. If the terms of the conditions of the tender offer are met (usually a minimum number of shares that have accepted the tender offer), then payment for the tendered shares is made all at once at the end of the offer period. Any shareholders that accept the terms of the tender offer can revoke their acceptance at any time during the offer period. Ownership of the underlying shares doesn’t pass to the consortium until payment has been made at the close of the tender offer period.
Easy profit? Not so fast! There are plenty of large brokerages publicly grumbling about this offer. COL Financial’s head of research, April Tan, said that the “beauty” of the offer is that MPI will not privatize if a big portion of the minority shareholders doesn’t accept the tender offer. Her recommendation: “DO NOT TENDER!” (Her all-caps yelling, not mine.) AB Capital said that the delisting is “far from guaranteed”, due to the consensus that the break-up value of MPI is closer to P6.50/share, and further muddying the waters by bringing up First Philippine Holdings’ failed delisting of fellow Lopez Family company, Lopez Holdings Corporation, back in 2021. If the tender offer results fail to satisfy the conditions of the tender offer (which we don’t know yet), then it’s possible that the tender offer could be withdrawn. That could have a considerable (negative) impact on MPI’s price.
What happens if MPI does delist? This is where the fun starts. It’s important to note that in the event the tender offer is successful and MPI does delist, any shareholders that did not sell their shares into the tender offer will still keep their MPI shares. Nothing will change with respect to ownership. The delisting process only makes the shares untradeable on the PSE’s system. Shareholders can pay banks and brokerages to conduct a private sale, though doing so is obviously going to be far more costly and time-consuming. If MPI does leave the PSE, it will also leave the PSEi, which means that a new company will need to be selected and included to fill the gap left by MPI’s delisting. Speculation is already in overdrive about which stock will be selected, with the early front-runners being Bloomberry [BLOOM 10.88 11.0%; 704% avgVol], Nickel Asia [NIKL 6.60 6.4%; 916% avgVol], and Century Pacific [CNPF 25.30 1.0%; 40% avgVol].
What’s next? We need to wait for the formal Tender Offer Report to be submitted by the consortium, which will outline all of the terms of the tender offer, including the specific offer period and any conditions that could adjust the likelihood of success or failure. Most importantly, it will provide insight into the fairness opinion that was conducted as the basis for this offer. If you remember back to the 2GO delisting, the Tender Offer Report contained the entire fairness opinion and explained in detail how the valuations were calculated. For the 2GO delisting, the fairness opinion used three different valuation methods that arrived at three different valuation ranges, with the final tender offer price (P14.64/share) being the highest of the three valuation ranges.
MB BOTTOM-LINE
To tender or not to tender, that is the question. MPI is such a divisive company.
It sparks a lot of emotional reactions for reasons that are beyond the scope of this little newsletter to unpack. First, I don’t think AB Capital’s concerns about the FPH/LPZ transaction are relevant, because MB readers will remember that FPH attempted to delist LPZ under the “old” PSE rules (which only required a board vote); that tender offer price was not supported by a fairness opinion, so it’s not a good measure of how shareholders could react to a potential tender offer under the new rules, which require the price to be the higher of a historical stock price average or a fairness opinion (as was done with 2GO).
Is the price fair?
I will wait for the Tender Offer Report to see what the fairness opinion says, but the market has (for a very long time) penalized conglomerates generally (as a class) relative to their book value, and punished MPI specifically relative to its book value.
If MPI truly were worth its book value of P6.97/share, then what would stop any investor from buying up a huge chunk of the public float for the price of this tender, or even higher? Nothing stops a company with P48 billion to spare from doing exactly as the consortium is doing right now.
But the lack of willing buyers at a higher price is only one point of reference, and the question of whether a shareholder should tender their shares is entirely a personal one.
There are risks involved. For those trying to scalp the tender offer, there’s the risk that the tender offer fails and you’re left holding MPI bags.
For those trying to hold out and wait for a better offer, there’s the risk that enough other shareholders tender to satisfy the terms of the tender offer, and you’re left holding shares of a delisted company with no easy way to sell.
For those who are just here for the memes and the feels, you’re in luck because this story is bound to continue generating a great deal of both for many weeks to come.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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