Another battle for Meralco looms as PLDT ups stake

ABS-CBN News

Posted at Mar 13 2009 01:43 PM | Updated as of Mar 15 2009 02:58 AM

The Manuel V. Pangilinan-led Philippine Long Distance Telephone Co. (PLDT) will buy 20 percent of the Manila Electric Co. (Meralco) from the Lopez group, setting up a battle with conglomerate San Miguel Corp. over control of the utility.

PLDT, through Pilipino Telephone Corp. (Piltel), will buy 223 million common shares of Meralco from the Lopezes' First Philippine Utilities Corp. for P90 a piece or a total of P20.07 billion in cash, the telecoms unit told the local bourse Friday.

Piltel's purchase will increase PLDT's ownership in Meralco to slightly over 30 percent and reduce the stake of the Lopez family, previously the single biggest shareholder in the power retailer, to only about 13 percent.

To exit cellular venture


Upon completion of the acquisition, Piltel will formally exit the mobile phone business under the Talk 'N Text brand, which will now be folded under the wing of affiliate Smart Communications Inc.

"These transactions/arrangements with Smart, once completed and implemented, will serve to consolidate the PLDT Group's cellular business under Smart, thereby maximizing revenues streams and eliminating any lingering regulatory issues relating to the traffic between the the two companies," Piltel said in a disclosure.

"The acquisition of a stake in Meralco constitutes a strategic investment for the PLDT group that could lead to significant opportunities for operational and business synergies and result in new revenue streams and cost savings for both organizations," it added.

Piltel noted that the PLDT group and Meralco have a number of compatible network and infrastructure elements such as fiber optic backbones, power pole network, and business offices, most of which can be optimized to generate cost savings for both entities. PLDT also wants to explore the possibility of offering broadband services over power lines.

From a new business standpoint, Piltel said Meralco could tap into PLDT's expertise in prepaid and mobile commerce to offer new services such as prepaid electricity as well as wireless bill payments and meter readings.

MVP allied with the Lopezes


The Lopez group has run Meralco for decades, but it appears to be selling a strategic stake to PLDT to block San Miguel from gaining control, analysts said.

PLDT is "clearly allying with the Lopezes," said Jose Vistan, an analyst at AB Capital Securities.

This alliance is manifested in an Investment and Cooperation Agreement between the Lopez group and PLDT wherein they agreed on certain governance matters such as the nomination of Meralco's board of directors and senior management officers. In other words, the Lopezes, although relinquishing the chunk of their Meralco stake to Pangilinan's group, will still have a say on who sits on the power firm's board.

According to Piltel, the PLDT group does not expect to invest further in Meralco beyond the 20 percent, which is on top of the previous 10.17 percent Meralco stake it bought through the PLDT Beneficial Trust Fund.

Even before the transactions were made public, PLDT's entry into Meralco was widely assumed to have the blessing of the Lopez group, who, together with allies, currently controls the utility's 11-man board.

The Lopez-PLDT group team-up, and San Miguel, another major shareholder, are likely to engage in a battle for board control in the run-up to Meralco's annual stockholders meeting on May 26.

Analysts have placed San Miguel's interest in Meralco at 37 percent, which includes the 27 percent stake earlier held by state pension fund Government Service Insurance System (GSIS) and another 10 percent  purchased by a reported ally, Global 5000 Investment Corp.

PLDT and San Miguel were previously in the race to bag GSIS' block of shares in Meralco. -Judith Balea, abs-cbnNEWS.com; With reports from Reuters; Liza Reyes and Ricky Carandang, ABS-CBN News

Disclosure: abs-cbnNEWS.com is the online news department of ABS-CBN Interactive Inc., a subsidiary of ABS-CBN Broadcasting Corp. ABS-CBN and Meralco are both part of the Lopez Group of Companies.