Win-win situation

MANILA, Philippines —Just recently, the Metro Pacific Investment Corp. (MPIC) board approved the filing of an application for voluntary delisting of its common shares from the Philippine Stock Exchange (PSE) with a view of taking the company private.

But why would a conglomerate such as MPIC, with highly successful businesses, want to go back from being publicly listed to being a privately held company?

MPIC shares have been undervalued for a long time for reasons not of its own doing.

The company is a leading infrastructure holding company in the Philippines, owning 47.5 percent of Meralco; 99.9 percent of Metro Pacific Tollways Corp., the largest toll road developer and operator in the country; 52.8 percent of Maynilad Water Services Inc., the largest water and sewerage provider in the Philippines by population coverage; and 20 percent of Metro Pacific Health Corp., the largest private hospital operator and healthcare service provider in the country, among other assets.

The infrastructure business involves huge capital outlays and the investments usually take a long time to recover.

MPIC currently has two major shareholders - Metro Pacific Holdings Inc. (MPHI) which owns 46.1 percent and GT Capital at 17.1 percent. About 36.6 percent is held by the public while the rest is owned by a myriad of investment funds and other retail investors.

The big investors of MPIC know that their investments may take a longer time to produce profits due to the nature of the business.

But because 36.6 percent of MPIC’s issued and outstanding shares are being traded in the PSE, the performance of these shares impacts heavily on MPIC’s stock prices. Many of these small investors who buy MPIC shares from brokers unload their shares when they read from the papers or online that the power situation in the country is bleak. When nothing is happening, they just sit on their shares.

These small investors are mostly not there for the long haul. They want to see quick returns which they will not realize in a regulated infrastructure company. They will buy and sell shares reactively and would not bother to understand the fundamentals of investing in the shares of an infra firm.

From Jan. 1, 2018 to Jan. 9, 2023, MPIC share prices decreased from 6.85 to 3.60, representing a 47 percent decline. Meanwhile, the PSE index went down by 21 percent over the same period.

It has been noted that as an investment holding company, MPIC has for many years traded at a very significant conglomerate net asset value discount and limited liquidity, highlighting potential misalignment between long-term regulated infrastructure assets and shorter-term public capital market preferences.

In fact, despite a sizeable share buyback program of P10.7 billion in recent years and improving financial performance, MPIC share prices have not improved materially.

And this situation is not expected to improve anytime by keeping MPIC listed in the Philippines market at status quo.

Under PSE rules, one of the requirements for the approval of a petition for voluntary delisting is that 95 percent of the issued and outstanding stocks of a company should be obtained by the persons proposing the delisting of a listed company.

It is good to know that MPHI and GT Capital, both of which have been MPIC major shareholders for a long time, are being joined by Mit-Pacific Infrastructure Holdings Corp. and MIG Holdings Inc. in making a tender offer to acquire all outstanding common shares of MPIC which they do not own.

They are offering to buy it at P4.63 per share, which is a 27 percent premium over the closing price of MPIC last April 19 of P3.73 per share, four days before the consortium filed its notice of intent to the MPIC board.

According to the bidders, a delisted MPIC will be better suited for and aligned with, such longer-term investment horizons.

Under the tender offer, First Pacific through MPHI would spend around $90 million to increase its stake to 3.8 percent using internal financial resources while GT Capital would pay around $70 million to up its stake to 20 percent for the residual 2.9 percent, also using internal cash.

Meanwhile, Mit-Pacific, which is a joint venture between Mitsui and the Japan Overseas Infrastructure Investment Corp. for Transport and Urban Development would buy up to 20 percent of MPIC, becoming a shareholder for the first time. The management investment group led by MPIC chairman Manuel V. Pangilinan would buy up to 10 percent.

The bidders explained that instead of the current situation where investors hold a structurally undervalued stock with limited liquidity, the tender offer will offer them an opportunity to sell their shares at a significant premium and obtain funds which they can in turn invest in more liquid stocks that are better appreciated by the market.

And what will happen if they do not participate in the tender offer?

If the tender offer is unsuccessful, it is believed that MPIC prices would likely go back to the P3.60 to P3.80 per share range, which will definitely not be good for the investors and the company as well.

The tender offer will start on June 7 and end on July 5. Unfortunately, the bidders will not accept any tendered shares unless the threshold for a voluntary delisting is achieved or exemptive relief is obtained from the PSE. So it’s an all or nothing situation.

It’s a win-win situation if the tender offer succeeds. It’s an opportunity for public investors to cash out instead of waiting for share prices to improve which more likely than not will never happen if the tender offer does not succeed and the delisting does not happen. MPIC’s shares would finally reflect the company’s real value after the delisting. New investors like Mitsui would be coming in and would make MPIC a stronger infrastructure company, which is what our country needs.

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