GMA deal boosts competitiveness of PLDT Group

Ending months of speculation and suspense in an industry moving towards convergence, a consortium led by Philippine Long Distance Telephone Co. subsidiary Mediaquest Holdings Inc. has finally entered into an agreement with certain shareholders of GMA Network Inc. for the acquisition of a 66.67-percent equity in the broadcast giant.

The acquisition will expand the arena in which the PLDT Group and the Lopez Group are competing, with the latter owning the country’s biggest broadcast network (ABS-CBN), the second largest telephone company (Bayantel), and the biggest cable television company (SkyCable), while the former owns the country’s largest telco, the second biggest cable TV company, and now the second biggest TV station.The acquisition price, according to Mediaquest, will be determined following completion of a due diligence exercise. The price will be based on an enterprise value of up to P14,588 million for 100 percent of GMA less the company’s net debt at the time of closing.

Assuming a net debt of about P2 billion, the acquisition cost for a 66.67 percent interest would be approximately P8.5 billion.

Mediaquest and ePLDT, which is the principal corporate vehicle for PLDT’s Internet, e-commerce, and multi-media businesses, will contribute half of the funding requirement for the transaction with other consortium members contributing the balance. The identity of the other consortium members will be disclosed when the due diligence has been completed.

The investment by Mediaquest in GMA is subject to a number of conditions including the completion of satisfactory due diligence, the signing of definitive sale and purchase agreements and relevant approvals.

According to ePLDT, the acquisition marks another significant step in the development of its multi-media interests and the convergence strategy of the PLDT group. "The transaction combines GMA’s leading position in traditional content exploitation and content creation with the PLDT group’s dominance in distribution.

PLDT president Manuel V. Pangilinan said he is looking at a good marriage of content (by GMA) and transport (by PLDT).

Sources from GMA said the 67 percent will come mainly from the 35-percent share of Duavit and 30-percent holdings of Gozon in the broadcast company and that Jimenez, who owns the remaining 35 percent, has decided not to sell. Felipe Gozon is currently chairman of GMA replacing last year Menardo Jimenez who headed the network for many decades.

Mediaquest is a wholly owned subsidiary of the Beneficial Trust Fund of PLDT and owns majority shareholdings in Philippine Home Cable Holdings (Home Cable Television) and Nation Broadcasting Corp. (NBC), a nationwide radio network of 30 AM and FM stations.

GMA operates VHF TV station Channel 7, the second largest free-to-air television broadcaster in the country with an audience share of 29 percent. It also owns an extensive nationwide radio network of 42 AM and FM stations. It also operates a UHF TV station Channel 27 (also known as Channel V) and is engaged in cinema, commercial production, high-end post production, electronic outdoor advertising, publishing, and e-commerce.

The acquisition by Mediaquest of a controlling interest in GMA will be supported by a consortium of strategic and financial investors led by ePLDT. Together with ePLDT, these investors are expected to maintain their economic interest in GMA through the issuance of Philippine depository receipts (PDRs) covering shares in GMA held by Mediaquest.

According to Mediaquest, GMA represents a unique investment opportunity to capitalize on the high growth potential of the Philippine media market. The network, it said, has consistently increased its audience and advertising share during the last few years, contributing to a cumulative average revenue growth of 18 percent during the five-year period up to 1999.

The GMA and PLDT groups said they believe that their potential partnership would create a multi-media business with critical mass and a potent mix of content and distribution assets, what with the combination of GMA with PLDT group’s existing interest in Home Cable TV which is the second largest cable television franchise in the country, NBC which has a substantial interest in MTV Philippines, as well as the PLDT group’s plan to offer direct-to-home satellite television services.

The partnership is also expected to increase the long-term sustainable growth potential of the combined business since it will have improved access to international providers of capital and content, position the group for future opportunities in any further consolidation of the media industry, and stimulate the development of new media services such as interactive TV.