Investment deal signed with MediaQuest
MANILA, Philippines — Broadcast giant ABS-CBN Corp. has found its way back to free TV by signing a landmark deal with Manny V. Pangilinan-led TV5 Network Inc. in a P4-billion transaction seen to hurdle legal challenges.
ABS-CBN yesterday informed the Philippine Stock Exchange that it entered into an investment agreement for the purchase of 6.46 million primary common shares representing 34.99 percent of the voting and outstanding capital stock of TV5 worth P2.16 billion.
The National Telecommunications Commission said it would scrutinize the deal. “The NTC is monitoring the developments in the proposed joint venture between TV5 and ABS-CBN,” Commissioner Gamaliel Cordoba said in a text message to The STAR.
In the process, TV5’s parent MediaQuest Holdings Inc. maintains its controlling stake in TV5, but its share in the firm narrows to 64.79 percent of its capital stock.
Likewise, ABS-CBN will spend another P1.84 billion on a convertible note to be issued by TV5. The convertible note will allow the Lopez-led network to increase its primary common shares in TV5 eight years after the issuance, enabling ABS-CBN to boost its equity up to 49.92 percent of TV5’s capital stock.
Proceeds from the subscription of ABS-CBN shares and issuance of convertible note amounting to P4 billion would be used by TV5 to finance its capital expenditures and operating expenses. TV5 also plans to enhance its content and programming and expand its public service.
In exchange, MediaQuest’s Cignal Cable Corp. signed a sale and purchase agreement with the Lopez Group, obtaining 38.88 percent of the issued and outstanding capital stock of ABS-CBN’s SkyCable Corp. amounting to P2.86 billion.
Cignal Cable will also invest P4.39 billion in a debt instrument to be issued by the Lopez Group, permitting Cignal to augment its equity to as much as 61.12 percent in SkyCable’s capital stock after eight years.
Furthermore, Cignal Cable will secure from SkyCable a P250 million convertible note that can be turned into primary common shares representing 1.84 percent in capital stock.
The Lopez Group eyes to use the P7.5 billion in proceeds from the sale shares, debt instrument and convertible note to repay certain obligations of ABS-CBN, as well as bankroll its purchase of TV5 equity. PLDT Inc., through its subsidiary ePLDT, will grant the loan needed by Cignal Cable to complete its transaction with SkyCable.
No need for PCC scrutiny
Infrawatch PH convenor Terry Ridon believes ABS-CBN and TV5 can overcome any regulatory issues that they may face in closing the deals. SAGIP party-list Rep. Rodante Marcoleta wants the Philippine Competition Commission (PCC) to investigate the transaction entered into by the network giants.
Marcoleta voted against the renewal of the legislative franchise of ABS-CBN, forcing it to shut its airwaves and leave free TV in 2020.
“We don’t see any basis for PCC to strike the deal, as this does not involve a transaction which will reduce or limit competition. In fact, when ABS-CBN lost its franchise in 2020, it ceased to be the dominant player in the broadcast segment. TV5 has not yet attained that dominant status in the same sector,” Ridon told The STAR.
Similarly, Ridon said ABS-CBN and TV5 no longer need to submit their transactions to the PCC for its review given that the value of the deals falls below the mandatory threshold of P50 billion.
“However, given the size of the transaction and entities involved, they may opt to undertake the voluntary review with the PCC. This is not compulsory though, as the transaction does not meet the current P50 billion threshold for compulsory review,” Ridon said.
Traders also said the network deals clear the path for ABS-CBN to generate additional revenue on the way back to profitability. Regina Capital head of sales Luis Limlingan said ABS-CBN can maximize the transactions to polish its synergies with TV5.
“On the industry front, the partnership should help level the playing field as the companies could leverage on each other’s expertise against the ever-changing and technology-driven business,” Limlingan said.
During the talks, AlphaPrimus Advisors and Picazo Law advised the Pangilinan camp, while law firms Romulo Mabanta and Quiason Makalintal guided the Lopez side.
After losing its broadcast franchise in 2020, ABS-CBN hopes to return to profitability in the near term, as its finances improve with its presence widening in multiple platforms.
NTC probe
Meanwhile, NTC’s Cordoba said they want to look into the supposed violations committed by ABS-CBN that led the 18th Congress to deny its franchise renewal. Also, he reminded franchise grantees like TV5 that they are prohibited from entering into commercial agreements with broadcast networks with existing issues.
On NTC’s order, franchise grantees are barred from signing mergers, joint ventures or sale with NTC-regulated entities with outstanding obligations. The agency also instructed transacting parties to clear their transactions with the Bureau of Internal Revenue, Bureau of Customs, and the Securities and Exchange Commission before proceeding.
“The commercial agreements together with the clearances should be submitted by the franchise grantee to the NTC prior to the consummation,” Cordoba said.
He said the full force of the government, including the Department of Justice, would be used to scrutinize the return of ABS-CBN to free TV.
The PCC yesterday also said that it has yet to be notified by ABS-CBN and TV5 of their agreement.
As mandated by the Bayanihan to Recover as One Act, all transactions that meet the P50 billion threshold should be filed with the PCC for review.
PCC officer in charge Johannes Bernabe said they may also conduct an initial assessment on the impact of the ABS-CBN-TV5 deal on industry competition. In its possible review of the merger, the PCC would determine whether the transaction would reduce competition in the broadcast market.
“Lack of competition may lead to higher prices or lower quality products and services, all to the disadvantage of consumers,” Bernabe said.