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Stock Commentary

EasyCall to buy company its parent, stock jumps 40%

Philstar.com
MB
About P1 million in ECP stock changed hands yesterday on volume that was about 30x higher than normal.
Merkado Barkada

EasyCall Communications Philippines [ECP 5.90 40.48%] announced that its board had voted to acquire 100% of the outstanding shares of Transnational E-Business Solutions Inc. (TESI) for P163 million, and to finance the TESI acquisition using a bank loan and/or a shareholder advance. The ownership of TESI is split 50/50 between Transnational Diversified Corporation (TDC) and TDG Ventures, Inc. (TVI).

Since TVI owns over 88% of ECP, the transaction is better understood as ECP purchasing a sister company from its parent. The disclosure said that the P163 million purchase price was at TESI’s book value, and that completion of the purchase is expected to occur early next year. Once completed, ECP will issue a related party transaction report on the transaction. The stock was briefly halted by the PSE to allow traders to consume the news.

MB BOTTOM-LINE

About P1 million in ECP stock changed hands yesterday on volume that was about 30x higher than normal. As with any related party transaction, it’s something of an open question whether this transaction is in the best interests of ECP’s minority shareholders, or if it’s just a convenient way for ECP’s ownership group to move capital around at ECP’s expense.

ECP has been improving its profitability recently, but it’s really unclear how this acquisition will integrate with what ECP is already doing. As an investor, I feel the burden of proof falls on the acquiring company to explain plainly and clearly to investors how purchasing something from its parent company is the best use of its funding. In this case, ECP justifies the acquisition with a lazy one-liner: “The acquisition of TESI will further enhance the products and service offerings of ECP.” Cool. I’m going to wait for the company’s comprehensive disclosure of the transaction for a better explanation of what’s going on here.

 

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EASYCALL COMMUNICATIONS PHILIPPINES INC MERGERS AND ACQUISITIONS PHILIPPINE STOCK EXCHANGE
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