How much is Maharlika’s offer for NGCP?

Just before 2024 came to a close, I wrote that Maharlika Investment Corp. (MIF)’s acquisition of possibly a 10 percent stake in National Grid Corp. of the Philippines (NGCP) could happen as early as this month.

Anything can happen as I write this. Only the parties privy to the matter know for sure what’s going on or what the status of the talks is.

Perhaps, it’s the reason why since late last year, share prices of Synergy Grid & Development Philippines (SGP), the listed company behind a 60 percent stake in NGCP, have been going up.

And now that the first half of January is over, the chatter is getting louder. InsiderPH’s Dax Lucas reported on Friday that the acquisition is now imminent.

A deal indeed may be sealed this month but the question on everyone’s mind is how much are we talking about?

What is the price that would convince tycoons Henry “Big Boy” Sy Jr. and Robert Coyiuto Jr. to let Maharlika in?

According to the grapevine, the two tycoons want a price closer to P20 per share due to NGCP’s future growth potential compared to SGP’s current share price of P12.90 per share.

US-based investment fund manager Eric Jurado has his own valuation analysis.

“My valuation analysis shows that SGP’s fair price is P10.20 per share, based on earnings growth of 4.4 percent per year over the past five years. This equates to an expected shareholder return of 10.4 percent per year over the next five years,” he said.

Creative deal structure

He said that to bridge the valuation gap and align the interests of both Maharlika and SGP’s major shareholders, a creative deal structure is essential.

Here’s a strategy Eric suggests to close the valuation gap analysis:

MIF’s perspective: Their probable offer of P10 to P12 per share aligns with my fair value estimate (P10.20), reflecting SGP’s fundamentals and projected return.

SGP’s owners’ perspective: Big Boy Sy and Robert Coyiuto demand a premium (probably P19.29 or more), likely due to strategic value, control and future growth potential.

As for the proposed deal structure, Eric suggests a hybrid structure combining upfront cash and performance-based incentives.

For the upfront purchase price, both parties can settle at P13.50 per share, which is a mid-point price. It is above MIF’s offer which can encourage the sellers to proceed but below book value which provides a reasonable entry for MIF.

Eric suggests an offer of an additional payment contingent on SGP meeting specified financial or operational milestones over the next three to five years.

Example metrics include earnings per share (EPS) growth, EBITDA margins and dividend yield improvements.

The benefits of this structure include a potential upside tied to future performance. It also enables MIF to mitigate upfront overpayment risk.

‘Strategic partnership’

As for the partnership structure, I heard that MIF wants more than one board seat. There’s chatter that the country’s first sovereign wealth fund wants four board seats to ensure active participation in the board.

If this happens, NGCP can leverage MIF’s influence to secure growth opportunities for SGP, including regulatory support especially for new projects, says Eric.

I agree with this. Perhaps the tycoons also know that the only way to get the unusually persistent and sometimes unreasonable investigations on NGCP to stop is to get the government on their side.

As for the funding structure, MIF can use a combination of debt and equity, Eric said.

“MIF can leverage inexpensive debt or co-investors to meet funding needs or approach aligned institutional investors for joint participation.”

Furthermore, Eric said, MIF can frame the offer as a partnership and highlight the long-term strategic alignment and benefits of MIF’s participation.

I also believe that it is very important for MIF to demonstrate how its involvement will drive value for all shareholders.

As with any partnership, just like a marriage, there are risks of course, and the tycoons, more than MIF, need to anticipate every scenario.

Thus, they should negotiate for protective clauses.

For example, they should have the right of first refusal for additional share purchases. There must also be a tag-along or drag-along rights for exit alignment.

“By structuring the deal with these components, a balance of the interests of both parties is achieved while fostering a partnership that adds long-term value,” Eric said.

But, more importantly, as I said in an earlier column, ordinary Filipinos must also share in the benefits of MIF’s entry into NGCP, if any, especially as it will impact on the cost of power in this country.

Now, let’s wait and see what happens next.

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Email: [email protected]. Follow her on Twitter @eyesgonzales. Column archives at EyesWideOpen on FB.