(picture looted from the Interwebs)
Agence France-Presse reports San Miguel: Not taking over Meralco which seems to be believed by no one. Whatever the news that emerges going into what’s expected to be a showdown for control of Meralco during it’s May stockholders meeting, the rise in Meralco share prices has become newsworthy in itself. In his column, Butch del Castillo has this to say:
Yesterday it hit P85, a 52-week high, at the close of trading. Stockbrokers are saying that Meralco shares may even rise further to P90 each by next week and retest a historic high of P105 in the next couple of months if the current trend holds.
It was only late last year when San Miguel Corp. (SMC) bought the entire 27-percent stake of the Government Service Insurance System (GSIS) for P30 billion. That was followed by the acquisition by a group headed by Inigo Zobel of another 7 percent of the voting rights in Meralco. Since then, Eduardo Cojuangco, Ramon Ang and two other nominees have been named directors of the utility’s 11-man board.
Considering that the equities market has been generally weak and sluggish for several months now, the upshot of Meralco shares on the stock exchange is nothing short of amazing.
To stockbrokers in the know, however, the share’s bullish behavior was not totally unexpected. They say what’s going on are only the rumblings of a looming proxy war between SMC and the Lopez group for control of the giant utility.
“This is the runup to Meralco’s annual stockholders’ meeting scheduled for May 26, 2009,” one broker says matter-of-factly.
Although there is no official confirmation from either side, recent developments on the PSE trading floor indicate that there is definitely an ongoing scuffle to amass as many Meralco shares as possible.
Right now, the two groups officially control roughly 34 percent each of Meralco. The Lopezes, through First Philippine Holdings, own 33.4 percent of Meralco. SMC holds exactly 34 percent, including the 27 percent it bought from the GSIS, plus the 7 percent that was lately acquired by an allied group led by Zobel from other government agencies…
The BusinessMirror quoted Gilbert Lopez, research head of Credit Suisse Group AG, as saying investors are speculating on a proxy fight between the Lopezes and the new entrant, which is SMC. “One of the two groups must have a clear edge to control the utility.”…
Obviously, both sides are playing coy and figuratively playing their cards close to their chests, but the stockbrokers know better.
A Bloomberg tally shows that 7.58 million shares changed hands as a block at midtrading the other day at P80 per share. Before that, three blocks totaling 16.7 million shares were bought and sold in three trading days.
What is clear from these developments is that certain groups are feverishly piling up as many Meralco shares as may be available in the open market a full three months before Meralco’s annual meeting.
As speculation would have it, most of the buying is being done by the SMC group headed by SMC chairman Cojuangco. The speculation is based on the well-known fact that of the two groups, it is the Cojuangco-Ang-Zobel team-up that has the kind of cash hoard that would be needed to buy up all the loose Meralco shares in the open market.
But whoever is doing most of the buying is certainly doing a swell job of helping to perk up the market, in general, and Meralco shares, in particular.
The Philippine Stock Exchange couldn’t ignore the movement of Meralco’s share price; but in the end, not much seems possible to do . While personally, the Meralco and San Miguel moves are of direct relevance to me (since I have a show on ANC and I own some San Miguel shares), what’s more relevant to this blog is the way big business and government seem joined at the hip in this particular case. Some of government’s losses have been made up by San Miguel acquiring government shares (helping buttress the bottom line of the government at a time when Moody’s gives RP no credit upgrade; the government is going to be hard-pressed to have cash on hand for patronage and running the government: see Government spending P7B to hire “temps” and State workers set rally vs layoffs ); on the other hand, government’s hostility to Meralco is also well served by San Miguel’s possible hostile takeover of Meralco.
If, for example, the interests of Eduardo Cojuangco are served by a cozy relationship with the present administration, could it then possibly be a sign of a confluence of interests that extends to the 2010 elections?
The administration, unlike its enemies, has the resources (money and manpower) to keep game plans running on parallel tracks, to see which will prosper. Among its many options remain Charter Change, emergency rule, and holding presidential elections as scheduled in 2010. But the last option, if it’s to be viable, requires sinking in resources now, and reaching an agreement with potential candidates sooner rather than later. These potential candidates -and their backers- themselves have different options running on parallel tracks (the Cojuangco interests, for example, would be interested in the prospects for Charter Change, and in elections in 2010, and perhaps, apprehensive of emergency rule, and must consider which option to invest in most effectively). The more these tracks converge, the more it would seem logical to pursue an existing, and lucrative, relationship as far as it will go.
Much as I thought 2004 marked the passing into history of the Marcos era and its henchmen, I may have underestimated both their staying power and their ability to groom a successor generation (Enrile is at his apogee, and not nadir, as a public official; Cojuangco seems headed for new heights of economic and political influence; Ronnie Puno seems entrenched as ever; and Francis Escudero seems the Second Coming of Ferdinand Marcos himself).
So when the Philippine Stock Exchange also allegedly (the allegation bering made in Lopez-controlled media) acted selectively in backing down from imposing a fine on San Miguel for violating disclosure rules , it seems a return to the days of impunity of the early 1980s (but if so, they’re in good company, see HK tycoons up in arms over trading rule and HK backs down on trading blackouts; relevant readings are Roubini: Anglo-Saxon model has failed and High Noon: Geithner v. The American Oligarchs). Which only goes to show the clout of the country’s only home-grown multinational.
I’ve had a hunch for some time now that the real news -the real political news- is taking place in the business pages, where reporters and pundits both are least well-equipped to report and comment on things.
The other day, in Has the payoff begun? the Inquirer editorial cautioned against moving too quickly and too slowly on the case of the collapsed rural banks owned by Celso de los Angeles. The editorial points to the messy interlinked interests of the parties involved, in particular, the Speaker and the House of Representatives and the PDIC and even the Monetary Board (which has to authorize loans to bail out the PDIC as it bails out depositors in de los Angeles’ rural banks).
But an entry in Stuart-Santiago (reacting to a Dan Mariano column) points to another possibility altogether: that de los Angeles is undergoing a hatchetjob at the hands of the big national banks, and was the victim of a campaign to spook his depositors. The possibility of intraindustry rivalries is something worth considering.
On another note, compare the two views on the LPG shortage in the columns of Rene Azurin and Dean de la Paz. Actually, both believe that the shortage was more along the lines of a hiccup in the market.
Azurin says what happened was this:
I tried to ferret out an explanation. What I’ve come up with is simply a tale of market forces acting as they might be expected to act in a deregulated competitive environment.
To begin, high oil prices throughout most of last year caused the benchmark Saudi contract price for LPG to peak in July 2008 at $940 per metric ton. As can be expected, local LPG demand in that month was at its lowest - about 76,000 MT – as households restricted their use of LPG and switched to other available fuels like charcoal and kerosene.
But, after peaking in July, the Saudi contract price for LPG suddenly dropped steeply and hit its lowest level in November 2008, around $330 per MT. Expectedly again, the suddenly very low LPG prices stimulated demand as households switched back from other fuels. Local demand in November and December was estimated to average around 96,000 MT per month, the highest levels so far experienced.
Despite the sudden spurt in demand, however, there was enough supply to meet the surge because importers had already increased their importations. From an aggregate importation averaging 47,000 MT per month from January to October 2008, the six importers brought in 67,000 MT in November and 66,000 MT in December. They upped this further by importing 81,000 MT in January 2009. When you add beginning inventories of about 35,000 MT and Shell’s local production of about 10,000 MT per month - Petron had an emergency plant shutdown in December – one arrives at the conclusion that Energy Secretary Angelo Reyes was absolutely correct in telling congressmen and the public that aggregate LPG supply was still adequate to meet total demand.
Why then was there a perceived shortage? Apparently, consumers who experienced difficulties in getting LPG were customers supplied by certain independent refilling plants mostly supplied by Liquigaz. Liquigaz supplies about 35% of the local market and is the largest importer of LPG but buys its supplies from the spot market. Presumably, in September and October 2008, Liquigaz (like any astute trader) tried to take advantage of projected falling prices by delaying the placing of its orders until LPG prices had hit expected lows. This - coupled with unexpected disruptions in LPG flow from Russia to Europe that upset the delivery timetable of Liquigaz – caused Liquigaz to be unable to fully supply its refilling plant customers during the critical December-January period.
This is why LPG dealers and retailers dependent on Liquigaz-supplied refilling plants were screaming shortage. In the battle for market share, Shell, Petron, Total, and other importers who had available stock naturally supplied only their own refilling plants and dealers, and refused to supply others. Customers of the LPG brands of Liquigaz refilling plants could therefore buy LPG but only if they were willing to shift to another brand or to another dealer. There is no supply shortage if some dealers and retail outlets have no stock, but others do.
Despite the problems that arose from its decisions, Liquigaz was of course justified in timing the placing of its orders to try and maximize its profits. Similarly, in a deregulated, competitive environment, Shell, Petron, Total, and others were justified in their refusal to supply those who were not their regular dealers in order to try and grab market share from rivals.
In a deregulated, competitive environment, government authorities like the Department of Energy and the Department of Trade and Industry cannot make output or pricing decisions for industry players. In fact, a policy of deregulation “to ensure a truly competitive market” requires that government authorities ensure that the industry participants are actually competing and not colluding with each other. In the current situation, not sharing supply with rivals so as to grab their market share is indicative of competition. Sharing supply with rivals so that market shares remain unchanged might be evidence of collusion.
While de la Paz says this is what happened:
In the run-up to December, global oil prices fell sharply and such crashes in values affect how oil companies manage inventory. Hoarding would have been stupid. In a temporary regime of falling prices, it would be imprudent to store large quantities as they would be forced to sell at lower prices than that from which inventory was accumulated. As a seasonal increase in demand of 50 percent is rather expensive given falling prices, the oil companies kept inventory at its economic quantity levels to sell at reasonable margins.
Because the LPG producers kept lower inventories, the burden to respond to the increased demand fell on importers. Of these, there is only one that can supply the inventory slack.
Importers service refillers from whom most of the lower-income market relies and where prices are more elastic. Without the same kind of distribution network owned by the major oil companies that produce LPG, a distribution problem can occur leading to marketplace shortages readily felt by those sensitive to incremental costs.
True shortages ensue severely aggravated officials threatening to prosecute dealers that sold over an imaginary price parameter that did not reflect true costs and the effect of prudent inventory management.
In such a situation, by importing only as needed and gradually raising prices to reflect economic realities, the shortages were soon alleviated in markets serviced by the top three suppliers. In niches serviced by refillers, shortages could still be felt as these outside the mainstream distribution networks.
In this rather revealing episode, if there is one thing evident, it is that we really need officials who understand the profound vagaries of the business and do not aggravate it by appearing clueless, running after scapegoats and imposing unrealistic demands.
Both seem to suggest that the current Secretary of Energy is not up to scratch.
The Warrior Lawyer comments on the Supreme Court’s decision on who gets custody of that convicted American soldier. The Inquirer editorial, Time to talk, says the Philippine government ought to be negotiating from a position of strength on this one, as it can call the bluff of the new American administration. But it seems the government is inclined to drag it out, doing Uncle Sam a favor even before it’s been asked for one.
San Miguel Corporation