News Analysis: MPIC cements its control over Philippine power firm

The Lopez family's decision to finally sell half of its remaining 13.4 percent stake in Manila Electric Co. (Meralco) to a group led by prominent businessman Manuel. V Pangilinan is within expectations.

Market analysts noted that Pangilinan's group which includes telecom giant Philippine Long Distance Telephone Co.- has always been the biggest shareholder in Meralco. Buying additional stake in Meralco is only a way for Pangilinan to defend his claim in the company.

And what would normally be perceived as a good news for the market turned the opposite when investors dumped their Meralco shares because of the uncertainty over the details of the transaction.

Shares of Meralco tumbled Friday to close at 194 pesos (4.07 U.S. dollars) apiece or 12 percent lower from its closing price the previous day.

"It remains unclear as to what the board members of First Philippine Holdings Corp. were thinking of. What exactly is the real story? What is the plan of Pangilinan?" an analyst from local brokerage AB Capital Securities, Inc. said.

First Holdings is the holding firm of the Lopez family, one of the country's most influential dynasties and used to have a controlling stake of Meralco.

The closely-watched corporate war in the Philippines saw two of the country's most prominent businessmen - Pangilinan and Ramon S. Ang, president of Southeast Asia's biggest of food and beverage conglomerate San Miguel Corporation (SMC), battling for control over Meralco.

The corporate battle have been grabbing headlines for the past few months and moved market prices. The competition intensified last week, when Henry Sy, Jr., eldest son of Filipino-Chinese retail magnate and country's wealthiest man, offered 300 pesos (6.3 U.S. dollars) a share, about 60 percent above its trading price, for the Lopez family's stake.

Pangilinan's group used to control 34.7 percent of Meralco, through PLDT (20 percent) and infrastructure holding firm Metro Pacific Investments Corp. (14.7 percent). Buying additional 6.7 percent stake in the company raises Pangilinan group's stake to 41.4 percent. This has cemented Pangilinan's group position as the single biggest voting block in the power retailer, which has been the darling of the stock market since the start of this year owing to the bidding war by rival corporate groups.

San Miguel owns a 27-percent voting block in Meralco. Another group perceived to be allied with San Miguel, Global 5,000 Investments Inc., owns at least another 7 percent of the company.

Thursday night, the holding company of the Lopezes decided to sell only half of their 13.4 percent stake in Meralco to Pangilinan's Metro Pacific Investment Corp (MPIC)., saying that it wants to remain a strategic investor in the company. By exercising its right of first refusal, MPIC, the local unit of Hong Kong-based First Pacific Co. Ltd., matched Sy's offer.

"We are very happy with the agreement reached with Mr. Pangilinan's group. It reflects a valuation that shows the strong growth prospects of Meralco. The proceeds, no doubt, will allow First Holdings to pursue its new directions and further establish itself in the country as the premier renewable energy provider," said Oscar M. Lopez, First Holdings Chairman and CEO, in a statement issued Thursday.

But had the eldest son of tycoon Henry Sy been successful in his bid for the 13.4 percent remaining stake in Meralco, it would have fetched 44 billion pesos (about 924 million U.S. dollars) for the Lopezes.

"Maybe they (Lopezes) don't need 44 billion pesos and for sentimental reasons, they need to maintain a certain interest in Meralco," said Eagle Equities president Joseph Roxas.

In a disclosure the Philippine Stock Exchange Friday, MPIC said it will borrow 12 billion peso-worth (252 million U.S. dollars) of nine-year fixed rate corporate notes from primary institutional lenders, which it will lend to the Lopezes

Under the agreement with the Lopezes, Pangilinan will lend 11.2billion pesos (235 million U.S. dollars) to First Holdings which will mature on March 31, 2010. Independent of the loan is a "call option" where Pangilinan will pay in cash the 22.4 billion pesos (470 million U.S. dollars).

If Pangilinan did not exercise his call option until March 31, 2010, First Holdings can sell it to other parties.

"Taking into consideration Meralco's strong financial prospects, we are confident that this transaction secures our objective in adding another valuable core business to MPIC's portfolio and in strengthening our position as a dominant player in the country's infrastructure industry," Pangilinan said in a statement.

MPIC's acquisition of additional shares was structured in such a way to avoid the mandatory tender offer, which otherwise would have required any group breaching a 35-percent equity to offer to buy out all other shareholders at the same price of the last block transaction, analysts said.

Source: Xinhua