GSIS raises Meralco stake to 27% by buying 48.34-M shares in June

By EMETERIO SD. PEREZ, Business Mirror Section Editor

Posted at Jul 30 2008 08:40 AM | Updated as of Jul 30 2008 04:40 PM

WINSTON Garcia, president and general manager of the Government Service Insurance System (GSIS), tried to oust the Lopezes from control of the 10-man board of the Manila Electric Co. (Meralco) during the company’s annual stockholders’ meeting on May 27, 2008.

Not only did Garcia, who owns one Meralco share, fail in his bid to take over the management of the Philippines’ largest power distributor using GSIS’s 245.819 million shares, equivalent to 22.275 percent of outstanding shares; worse, his frustrated attempt to control the board dragged down Meralco’s share price on the Philippine Stock Exchange.

But Garcia, in trying to wrest control of Meralco’s board from the Lopezes, also contributed something good to the market. Whether he knew it or not, he was instrumental in dragging down the price of Meralco shares, thereby opening a buying opportunity for long-term investors.

GSIS was one of the big investors, which took advantage of Meralco’s decline by buying 48.341 million shares. The additional acquisition increased GSIS holdings to 294.160 million shares, or 26.656 percent.

Meralco plunged to P36.50 on June 24, 2008, a month after the company’s annual stockholders’ meeting. At this price, GSIS’s additional 48.341 million shares had a market value of P1.764 billion.

The market monitor showed Meralco shares were trading at a high of P81 on May 2, 2008 and a low of P63 on May 27, the day the company held its annual stockholders’ meeting.

Even Manuel Lopez, Meralco chairman and chief executive officer, also did some buying. A filing showed he bought 62,000 Meralco shares on June 12, 2008 at prices ranging from P46.50 to P47.50. The acquisition increased his direct holdings in Meralco to 1.974 million shares, or 0.17771 percent.

The Lopezes have shown that the way to control Meralco’s 10-man board is not through heavy buying of the company’s shares but by soliciting proxies from stockholders.

With the Meralco shares held by GSIS and other government entities totaling 362.855 million shares, or 32.54 percent, Garcia had the numbers to elect three seats, but the Lopezes retained control of the board on the proxy votes in last May’s stockholders’ meeting.

What if the annual meeting and election of the members of Meralco’s board were held today? Will Garcia win more seats with GSIS’s additional shares?

Garcia now has at his disposal a total of 408.824 million shares, or 36.677 percent. These include the holdings of, aside from GSIS, the Social Security System, Land Bank of the Philippines, Philippine Health Insurance Corp. and Home Development Mutual Fund.

The Lopezes, on the other hand, control Meralco through the holdings of First Philippine Union Fenosa Inc. and First Philippine Holdings Corp. which total 230.085 million shares, or 22.863 percent, and 40,061,508 shares, or 3.98 percent, respectively. They also hold the proxies on the 88.548 million Meralco shares, or 8.798 percent, held by Meralco Pension Fund.

These stockholders combine for 35.641-percent equity in Meralco, which may be less than what the government now owns but which were enough to enable the Lopezes to take control of Meralco’s board with the help of foreign-held Meralco shares in the company’s annual meeting in May.

With the government not yet giving up the fight, the fate of the small investors remains uncertain as far as their play on Meralco is concerned.

If GSIS wants more, there are more than enough Meralco shares in the market to buy. The PSE web site shows the company’s equity profile: listed shares, 1.104 million shares; outstanding, 1.115 million shares; and free-float level, 38 percent.

The question is, with GSIS now exceeding 25-percent ownership in Meralco, will the regulators force it to make a tender to buy all the remaining outstanding Meralco shares? As Meralco’s stock price keeps rising, who will be willing to part with their holdings to GSIS at the current price?

Meralco is now among the market’s heavily traded stocks. The PSE web site showed 41.056 million shares were traded in 2006 on value turnover of P1.266 billion, or P30.836 each; 200.550 million shares on value turnover of P16.541 billion, or P82.478 each in 2007.

With still five months to go, Meralco has already joined the list of most active stocks in 2008 with volume of 420.880 million shares on value turnover of P30.059 billion, or P71.419 each.