The Long View: Buy but not sell


Buy but not sell

 / 05:10 AM September 20, 2023

In January of this year, news came that Japanese conglomerate Mitsui was interested in acquiring up to 20 percent of the Metro Pacific Investments Corp. (MPIC), the holding company whose basket of goodies includes the Manila Electric Company (Meralco), Metro Pacific Tollways Corp., Maynilad Water Holdings Company, Inc., and Metro Pacific Light Rail Corp. The reason given was that the MIPC shares have long been undervalued though not of its own doing. Last year’s yearender was the reputational blowup of PLDT which disclosed a budget overrun almost equal to its 2020 and 2021 income combined. Few CEOs would have survived such a revelation but Manuel V. Pangilinan did; still, something had to be done.

Soon after, the papers started reporting that a scheme was mulled over by Metro Pacific to delist from the stock market and go private. A Bilyonaryo report at the time quoted one analyst: “Stock is super cheap, trading below the value of MER (Meralco) shares that it owns (implying all other subsidiaries are free). Price has also failed to go up despite share buybacks and other efforts to (increase) shareholder value.”

In late April of this year, as this paper reported, the goal became to buy back 36.6 percent of the company at P4.63 per share, a P48.6 billion tender, although an analyst quoted in the same report said, “The tender offer price represents a steep 54 percent discount to our [net asset value] estimate for MPI and 47 percent discount to our fair value estimate for the stock,” which they pegged at P8.79 a share.

In July, the offer had to be raised by 12 percent and now totaled P54.8 billion or P5.20 per share. Rappler quoted an investment house advisory: “The tender offer price is just at a 4-percent premium to the market value of MPI’s 47.5-percent stake in [Meralco] of P5 per share. As such, from a valuation perspective, we deem the tender offer price of P5.20 per share to be too low,” adding that the firm’s advice was for those “who could not afford to risk their investments getting delisted” to take the offer anyway. Still, it was finally approved by “more than 77 percent of shareholders” on Aug. 8 and made official by the consortium composed of Anthoni Salim’s First Pacific Group, the Ty family conglomerate GT Capital Holdings, Japan’s Mitsui, and a private company owned by Manuel V. Pangilinan, starting on Aug. 9. The tender offer would expire on Sept. 7.

At this point, GSIS went on a “buying spree” (as the Manila Times reported it) from Aug. 23 to Sept. 4, upping its stake from 3 percent to 3,438,549,038 common shares, “which represents approximately 11.98 percent of the total outstanding common shares of MPIC,” according to Metro Pacific. The same report quoted an analyst who wondered if the GSIS move “could derail” the scheme.

What the bigger chunk means is a board seat. In the end, the GSIS announced it would play ball: It would neither oppose the buyout nor sell its shares. What the buyout seems to have achieved is, first, a glowing PR opportunity for the GSIS boss, Jose Arnulfo Veloso, former head of PNB. The Ken in a report went as far as saying, “It is rare for a government institution to display such prowess in the realm of strategic market trading,” while Bilyonaryo had an unnamed source enthusing, “It’s a gutsy and costly move for GSIS. However, when all is said and done, Veloso remained true to his mandate of safeguarding shareholder value, transitioning from a position of vulnerability to one of strength.”

Of course, not everyone agrees. Stepping gingerly around the possibility of antagonizing GSIS can punish brokers who state inconvenient truths. To be sure, it’s puzzling that if the name of the game was a buyback offer by a consortium, then why would a government financial institution (GFI) up its stake only to decline the buyback offer, leaving it with one seat in a 15-person board, which seems slim leverage overall although such a seat would be a plum post?

Market watchers themselves made sense of the move in terms of it being a bold one, threatening to torpedo the scheme unless those being bought out would be given a price more closely reflecting the real value of the stock. After all, as a GFI, the GSIS not only represents its members’ pensions-to-come, but arguably it can, and should, play a role in the broader public interest—in this case, the other shareholders, big but particularly the small, who would otherwise be “forced to leave money on the table,” as one broker (privately) put it. The Philippine Stock Exchange’s rules put the threshold for the bidders at 95 percent of shares and what GSIS did was get the consortium that much closer to its goal that much faster.

GSIS can, of course, sell off its chunk to the consortium not only at a later date, but at a higher price, and with much less in the way of public attention. One could only fault such a development, whether agreed upon privately beforehand or as circumstances play out, if one is convinced the GFI could have used its clout to help all minority shareholders if it believed the buyback offer was undervalued.

Manuel L. Quezon III.

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