The Explainer: Corporate Raiders and Proxy Fights

That was a scene from the short film, “The Crimson Permanent Assurance,” Monty Python’s parody of the corporate raiding culture of the 1980s.

Over the past weeks, you’ve been either entertained or infuriated by the he-said, she-said arguments between Meralco, sister company of this station, and the government.

Unless something happens, the media battle will soon come to a head by means of a boardroom battle.

On May 27, it’s widely expected that the Mother of All Proxy Fights will take place at Meralco.

What a Proxy Battle is, and who Corporate Raiders are, is what The Explainer’s about tonight. I’m Manolo Quezon.


I. Whether you like it or not


You may recall our episode, where we discussed the stock market. We explored what shares of stock are, and how people make money from buying and selling shares. What we didn’t go into is how owning certain kinds of shares, can confer voting rights on the shareholders.

Shareholders, if they can vote, can show up in annual stockholder’s meetings, to discuss, dispute, and debate, the policies of the company and choose the board of directors for the coming year.

They can do this in person, or, if they don’t want to show up, they can then delegate their voting rights to a representative. All they have to do is sign a proxy form, designating someone as their proxy.

Normally, annual stockholder’s meetings are ritual occasions, but they can become exciting when a company’s directors have embarked on policies that are controversial. Shareholders can then launch a revolt, and basically fire the head of the company and the directors they don’t like.

You know the saying that politics is addition. Well, in a battle for votes, investors in a company can fight it out with all the emotion and ruthlessness of a political campaign. When every vote counts, and not every voter will be present, part of the preparations includes collecting proxies.

There are times, too, when another company, or a big businessman, will want to take over another company, whether that company likes it or not. That’s what’s called a hostile takeover. And it, too, can result in shareholders –or to be precise, their votes, by means of proxies- being courted by both sides.

Media tycoon Rupert Murdoch got control of the Wall Street Journal by lobbying individual members of the Bancroft family, whose combined holdings had formerly been voted as a bloc for a century. When individual family members started being in it for themselves, the family as a whole had to sell out –at a premium, of course.

The example of a hostile takeover in the news these days involves software giant Microsoft, and online colossus Yahoo!

You’ll find lots of articles on line about the issues involved in this hostile bid, for example, in the BBC:

Or on tech-oriented sites:

The Guardian Newspaper online, too, has a fine timeline of the battle of the two giants:

And all you’ll have to do is refer to our blog,, where we post our scripts and links.

For now, what’s relevant to us is how the latest news on this hostile takeover drama is a possible shareholder revolt:

But all these fights involves corporations trying to eat up other corporations. Where things are slightly different, here at home, is that government can play a direct, and crucial, role, in the chances companies have to gobble up other companies, or defend their turf.

The Soriano family, for example, had management control over the San Miguel Corporation for two generations, even though they never had more than a minority share of the company. They did so by means of the support of substantial shareholders.

Then, after his bid to assume control of the corporation failed, the late tycoon Enrique Zobel sold his shares to Eduardo Cojuangco, and with the aid of government support, Cojuangco assumed control of San Miguel.

Cojuangco lost control of San Miguel with the Edsa Revolution but during the Estrada administration, again with government support by means of the voting rights of shares it had sequestered in 1986, Cojuangco eased out the third generation Sorianos and reassumed control of the country’s biggest corporation.

Now this collision between Meralco’s two biggest shareholders, has a third player –and that’s government. Why this has politicized the looming proxy fight, is what we’ll tackle when we return.


II. Three cornered fight


Like that Charlie Chaplin film titled “Police,” what began as a fight between shareholders soon got the authorities involved.

This image from

Which shows Napoleon of France and Alexander of Russia, meeting on a raft in Tilsit, where they basically decided to carve up Europe between them, resembles the sort of images being portrayed in the papers.


A recent Inquirer editorial, this one, titled “The Garcia Gambit,”

Delved into why can’t ignore the political dimension of the battle over Meralco.

That’s because, whether it’s fair or not, or like it or not, it has echoes in past fights over the company.

Let’s take a look at an article published in the Philippines Free Press back in 1971.

In it, Edward Kiunisula wrote, and Pat, could you read an excerpt?

In Malacañang, Marcos pointed to Meralco’s high rates as one of the principal factors in the rise of prices.

Meralco, of course, did not take Malacañang’s charges lying down. Its board chairman, Emilio Abello, was ready with answers. At the same time, Malacañang strategists got some labor leaders and consumer groups to their side. Their obvious purpose was to show that it is the public itself, not just Malacañang, which is fighting Meralco. The major issue of Malacañang against Meralco is Meralco’s alleged high rates.

So that’s where the strategy of those “Suportahan ang Presidente: Ibagsak ang presyo ng kuryente” posters you see along Mendiola began!

The story of Marcos battling Meralco was a big deal for two reasons. The first reason dates back to 1965, when these three gentlemen –Macapagal, Manglapus, and Marcos- were running for President:

President Macapagal, the incumbent, had famously tried to pick a fight with the owners of Meralco and as it turned out, the winning team was this:

An alliance that secured victory in 1965, and again, in 1969. But by 1971, the alliance had soured, and since his allies, besides owning Meralco, also owned a powerful network, Marcos had to do something.

Which brings us to the second reason it was a big deal. People, by 1971, had begun to suspect President Marcos wanted to stay beyond his constitutional term which ended in 1973.

Marcos’ response? Pat, why don’t you read what President Marcos said, as quoted by the Free Press in its editorial?

President Marcos promised,

“You cannot perhaps know the pressures that the President is subjected to… the coercion, the intimidation. Some time ago, I received a message which indicated the sickness of our society—to the effect that if I did not approve a certain favor I would be attacked in the newspapers. My immediate reaction was: go right ahead and attack me. That is your privilege but I am going to judge these questionable transactions on the basis of their merits, not on anything else. I have decided, I said, that in 1973 I’ll retire from politics. That is my wish, that is my hope, and nobody is going to intimidate me in any way.”

The problem was that as we now know, Marcos wasn’t exactly being forthright, and his subsequent takeover of Meralco ended up being the prelude to crony capitalism.

And so, businessmen and the public have been paranoid over presidential battles with big business ever since.

Since we take everything personally in this country, the moment the President weighed in, what might have been a proxy fight only interesting to shareholders became a national issue.

First let’s take a quick look at the GSIS.

According to its own website, the GSIS was established in 1936. It’s now worth over 400 billion pesos.

It provides and administers the following social security benefits for government employees:


compulsory life insurance,

optional life insurance,

retirement benefits,

disability benefits for work-related contingencies and

death benefits.


It also adminsters the General Insurance Fund by virtue of R.A. 656 of the Property Insurance Law,

And provides insurance coverage to assets and properties which have government insurable interests.

And it administers the Kinabukasan Mutual Fund.

This fund had returns of 40 percent in 2006, and returns of 23 percent in 2007. And according to Newsbreak Magazine, the pension fund’s made oodles of cash by selling its holdings in San Miguel Corporation, the Philippine Long Distance Corporation and the Ayala Corporation in 2007.

And it’s this fund, the oodles of cash, and how Winston Garcia went shopping, that’s at the heart of the confrontation between Meralco and the GSIS. The fund has to keep sniffing around for opportunities, because it has to keep giving its investors a healthy return on their investments.

And the GSIS senses a gigantic opportunity in Meralco.

The essentials behind the looming proxy fight are discussed in this article by Newsbreak:

It goes like this. In 2006, the Lopezes bought ought the shares owned by the Meralco Pension Fund. That represented a 6.6 percent chunk in the company. Last year, Meralco’s Spanish investor, Union Fenosa Internacional SA, sold its holdings, which amounted to 22.7 percent of Meralco. These consolidations resulted in the Lopezes owning 33.4 percent of the company.

But someone else was also gobbling up shares, and that man was Winston Garcia. Up to last year, our government owned 20 percent of Meralco. The GSIS, which at that point owned around 8 percent of Meralco on its own, bought half of the government’s shares. That boosted the GSIS’s holdings to 18 percent. It then started buying shares in the stock market, so that today, it owns 23 percent of Meralco.

Now remember, the government only sold half of its 20 percent holdings in Meralco to raise cash. To be precise, Philhealth, Landbank, Social Security System, and Pag-Ibig Fund all have shares which, added together, totals ten percent of Meralco. Add their ten percent to GSIS’s 23 percent and presto, you have 33 percent of Meralco owned by government corporations. That means the Lopezes only have a .4 percent advantage over the government group.

Newsbreak says that Winston Garcia, seen here in this charming photo, is basically a genius at engineering proxy fights to get the most bang for his shares. Now the only problem with this, is that those with a gift for such things, can be such high-risk takers with other people’s money, that they can end up like this guy:

Ivan Boesky, who ran afoul of the law.

One example Newsbreak gave of Winston’s genius was how Garcia got involved in the battle for control of Equitable-PCI Bank. The Sys of Shoemart fame wanted to buy the bank. The Go family which controlled the bank, didn’t want to sell. So Garcia helped convince Martin Romualdez, a minority shareholder in the bank, to throw his support behind the Sys. This gave the Sys votes they needed.

But then, the Sys discovered that an obstacle to their assuming full control by merging Equitable-PCI with their own bank, Banco de Oro. The GSIS had a big chunk of shares, and it wouldn’t sell. The Sys made an offer, and Winston Garcia refused, because, he claimed, there was a buyer offering much, much more for the GSIS’s 12 percent holdings in the bank. The Sys couldn’t wait for ever –so they had to fork over twice what they’d originally offered, just to get the GSIS out of the way.

In the case of Meralco, Garcia’s proposing to break the company up into more manageable chunks:

But since basically, the Lopezes have a slight edge, if the GSIS wants to assume control of the firm, it has to convince other shareholders to give it their proxies; you can be sure the current largest shareholders are doing the same, too. And thus, the battle royale.

If you’d like to know more about the many issues raised by this fight, a very intriguing discussion of the issues can be found in this blog:

It’s called Tongue In, Anew, a screen cap of which you’re seeing behind me. Written by an ex-New York stockbroker and investment consultant, do check it out. Among other things, if you ever wondered why Winston Garcia seems to know a lot about the electricity industry, the blogger answers it with this image:

The Garcias, along with the Aboitizes, are involved in the electrici distribution business in

And check out, as well, two interesting columns.

One by Dean de la Paz is last Monday’s Business Mirror…

And one by Tony Lopez in the Manila Times.

And in fact, we’re going to talk to Tony Lopez when we return.


My view


Business, someone once said to me, is about creating value. It’s not about being good or bad. But what happens when a business vitally affects the public, as Meralco does, and when businesses owe their existence to the government, as the GSIS does. Government is supposed to exist for the public good. Can businesses with shareholders who have a right to demand profits, be required to adhere to the public good?

There are shareholders in Meralco; a powerful family and a government institution among them.

And yet anyone who’s paid dues to the GSIS is, in a sense, a shareholder of that institution, too. It just so happens that the reason that the institution exists, is because of government policy dating back to the Commonwealth.

If the GSIS mobilized its holdings only to increase the value of its investments, and if GSIS were a purely private investment fund, there might be no questions to raise. But it’s mounting a bid for control of Meralco not only to boost its hedge fund’s profits, but also in part, to assist the government’s stated goal to lower your and my electric bill.

And so, we need to take a look at how public monies are used for public purposes; because in the end, as this book, tells us of Americans, wealth has a way of protecting its own; and what’s presented by either side as a public interest fight, can always end up being purely about private gain.




Manuel L. Quezon III.

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