PLDT buys 20% Lopez stake in Meralco
() - March 14, 2009 - 12:00am

MANILA, Philippines - The Philippine Long Distance Telephone Co. (PLDT) Group strengthened its foothold in Manila Electric Co. (Meralco) yesterday after acquiring a 20-percent stake of the Lopez Group in Meralco for P20.07 billion.

Yesterday’s acquisition by the PLDT Group increased its stake in the power distribution utility to 30.17 percent and set up a battle for control of the utility firm with food and beverage giant San Miguel Corp. (SMC).

The share of the Lopez Group, which was the single biggest stakeholder in Meralco with a 34-percent stake prior to the PLDT acquisition, is now down to 14 percent.

With Meralco’s annual stockholders’ meeting and election of board of directors scheduled in May and a proxy war for control expected to ensue, PLDT is now assured of at least three seats in the Meralco board.

When asked whether PLDT’s representatives will be nominated to the Meralco board to occupy the three seats, PLDT Beneficial Trust Fund (PLDT BTF) vice chairman Ray Espinosa said “we are still talking about it.”

First Philippine Holdings Corp. (FPHC) said it has entered into an investment and cooperation agreement with PLDT designed to allow both companies, directly or indirectly, to vote their shares in Meralco based on mutuality of interest and proportionate allocation of voting rights.

FPHC and PLDT agreed on certain corporate governance principlesi such as nomination of directors to the Meralco board. FPHC said these principles will enable PLDT to actively support in the management of Meralco.

Analysts said that the agreement in effect confirmed the consolidation of PLDT and the Lopez Group’s respective stakes in Meralco to ensure continued control by the Lopezes of the power utility.

PLDT BTF earlier acquired 10.17 percent of Meralco after accumulating 113.3 million shares of the latter from Feb. 3 to March 6 through the open market, entitling it to one seat in the 11-member Meralco board.

PLDT and the Lopez group are reportedly consolidating their respective stakes to assure control of Meralco, pitting it against San Miguel Corp. which now has a 27 percent stake and four board seats. There have been reports that SMC indirectly controls another 13 percent, for a total interest of 40 percent, which SMC has denied.

Yesterday’s acquisition of 223 million shares of Meralco at a price of P90 per shares was made through PLDT wireless subsidiary Pilipino Telephone Inc. (Piltel).

The boards of directors of PLDT, Smart Communications, and Piltel approved yesterday the acquisition by Piltel from the Lopez Group for a cash consideration of P20.07 billion, subject to Piltel shareholders’ approval.

The purchase represents approximately 20 percent of Meralco’s outstanding common stock.

As part of the transaction, Piltel will enter into an exchangeable note agreement with the Lopez Group where Piltel will purchase an exchangeable note, issued by First Philippine Utilities Corp., with a face value of P2 billion, exchangeable at Piltel’s option into 22.22 Meralco shares, and which will constitute part of the 20 percent Meralco shares to be acquired by Piltel.

Under the investment and cooperation agreement executed between PLDT and the Lopez Group, both parties agreed as well on certain governance matters such as the nomination of board directors and senior management officers.

The PLDT Group said it does not expect to invest further in Meralco beyond this 20 percent stake. 

Piltel is a 92.81 percent-owned subsidiary of Smart which in turn is wholly owned by PLDT.

Under Piltel’s articles of incorporation, Piltel is permitted to make investments in other businesses outside of telecommunications.

PLDT officials said that in addition, Piltel has a sizeable cash position, net of committed dividend payments, which will allow it to fund this transaction substantially from its internal funds. 

Piltel will seek shareholders approval of this investment at its annual stockholders’ meeting to be held on June 30, 2009. 

PLDT officials said the acquisition of a stake in Meralco constitutes a strategic investment for the PLDT Group that could lead to significant opportunities for operational and business synergies and result in new revenue streams and cost savings for both organizations. 

Meralco is the largest distributor of electricity in the Philippines with a service area spanning 9,337 square kilometers, where approximately a quarter of the total Philippine population resides. It has a customer base of about 4.5 million, comprising commercial, industrial, and residential customers.

PLDT also noted that in addition to electrical distribution, Meralco undertakes several related businesses, including e-Meralco Ventures (EMVI) which operates a fiber optic network of over 1,000 kilometers and provides leased line connections, metro ethernet connections and disaster recovery transport services.

In 2008, Meralco generated revenues of P191 billion and a net profit of P3.1 billion. It has a total asset base of P178 billion and total debt of P21 billion.

The PLDT Group and Meralco have a number of compatible network and business infrastructure elements, such as fiber optic backbones, power pole network, and business offices, most of which can be optimized to generate cost savings for both entities, PLDT officials pointed out.

Backroom assets in information technology and data management can potentially also be pooled, consolidated and maximized such that both companies benefit from cost savings and utilize the other’s strengths, PLDT said.

It added that other areas for possible collaboration are in easements and rights of way, bill statement printing and enveloping, general procurement, and advertising spend. 

PLDT also emphasized that from a new business standpoint, Meralco could tap into the former’s considerable experience in the prepaid and mobile commerce fronts to offer new services such as prepaid electricity as well wireless bill payments and meter readings.

For its part, PLDT could explore, in partnership with Meralco, the possibility of offering broadband services over power lines, it said.

BENEFICIAL TRUST FUND BILLION GROUP LOPEZ GROUP MERALCO PILTEL PLDT SAN MIGUEL CORP
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