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Protection of Minority Stockholders

wilch23 · 23 · 7932

wilch23

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on: Oct 21, 2014, 07:24 AM
Since we are all minority stockholders in the listed PSE companies, we should be aware of our rights and privileges.

One of which is that when someone buys a significant number of shares that enables him to gain control of a company, that someone is obligated to make the same buy offer to other minority shareholders. This is especially true if the buyer bought it in a block sale from limited number of sellers with pre arranged pricing.

The logic behind this is that shareholders buy in with because of their trust in the controlling shareholder/management. But with the change in control, these small shareholders should be given a way out that is not disadvantageous to them.


bauer

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Reply #1 on: Oct 22, 2014, 08:50 AM
^ SEC has a rule on 'mandatory' buy-out.  The trigger?  35% or more share purchase by a single buyer.


bajoyjoy

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Reply #2 on: Oct 22, 2014, 03:03 PM
^Just to add, that condition presupposes that the accumulated shares would be more than 51% of outstanding shares. That means even if the acquisition is less than 35% but may existing holdings na sya and it will already breach the 51% threshold (majority ownership has changed), mandatory tender offer is proper, supported by a fairness opinion from a 3rd party financial advisor.

Incidentally, there is a disclosure on PAL buyback by Lucio Tan today:

Clarification of News Report
Gentlemen:

This refers to your letter dated October 22, 2014 requesting for clarification/confirmation of the news article entitled “Tan buying out PAL minority at a discount” posted in the October 20, 2014 issue of The Manila Standard Today (Internet Edition), which in part states that:

“Two companies controlled by tycoon Lucio Tan offered to buy out minority shareholders in PAL Holdings Inc. and Philippine Airlines Inc. at discounted prices of P1.19 per share and P0.31 per share, respectively.

Sources said the offer period would be from Oct. 22 to Nov. 19 while settlement date was set on Nov. 26.

. . . .”


Please be advised that PAL Holdings, Inc. (“PAL Holdings”) received a Summary of Terms of the Voluntary Tender Offer (the “VTO Summary”) from Buona Sorte Holdings, Inc. (“BSHI”) and Horizon Global Investments, Ltd. (“HGIL”) today, 22 October 2014, details of which are as follows:


Pursuant to the VTO Summary, BSHI and HGIL shall accept and acquire all the issued and outstanding common shares held by any minority shareholders of Philippine Airlines, Inc. (PAL) and PAL Holdings who wish to sell their shares (the “Voluntary Tender Offer Shares”). The acquisition by BSHI and HGIL of the Voluntary Tender Offer Shares shall be subject to the following terms and conditions:

(1) The purchase prices for the Voluntary Tender Offer Shares are:

Voluntary Tender Offer Shares Purchase Price Per Share
PAL Holdings Voluntary Tender Offer Shares Php 1.19 per share
PAL Voluntary Tender Offer Shares Php 0.31 per share

(2) The Voluntary Tender Offer Period shall commence on 22 October 2014 at 9:00 a.m. and end at 12 noon of 19 November 2014.

(3) BSHI and HGIL intend to cross the PAL Holdings Voluntary Tender Offer Shares which are listed on the Philippine Stock Exchange on 25 November 2014.

(4) The consideration for the Voluntary Tender Offer Shares shall be payable within five (5) business days after the end of the Voluntary Tender Offer Period or not later than 26 November 2014.


1.19 per share compared to today's price of 5.3? Paanong fairness opinion ang ginawa jan?


bauer

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Reply #3 on: Oct 23, 2014, 09:09 AM
@bajoyjoy,

Malaking kabalbalan talaga ng Lucio Tan Group na mag-alok ng mahigit piso at trenta sentimos sa mga minority shareholders ng PAL.  Ito ay ginamitan ng teknikalidad na isang malaking panloloko sa mga investors.  Kaya nga ba wala akong tiwala na maglagak ng pondo sa isang kumpanya na kontrolado ni Lucio Tan.

Based on the last financial report of PAL (June 2014), total outstanding shares of PAL is 24,836,512,0000 (or about 24.8 Billion).  Assuming by argument that 49% of PAL is formerly owned by SMC (indirect and direct stakes), then SMC controlled 12,169,890,000 of PAL's shares.  Public statements that LT group bought it US$ 1.3 Billion dollars from SMC (using a FX rate of 1=45), then about 58.5 Billion pesos was the value equivalent for 49% stake of SMC.

If SMC controlled 12.169 Billion shares divide by 58.5 Billion pesos, then actual estimated purchased price was about 4.80 pesos per share.  This amount per share MUST be the offer price of LT group for minority shareholders.

We need SEC and PSE to ACT on the shenanigans beings employed by LT groups' accounting & legal magicians.
« Last Edit: Oct 23, 2014, 09:10 AM by bauer »


bajoyjoy

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Reply #4 on: Oct 23, 2014, 02:01 PM

According to SEC's Memo Circ. No. 13, s.2013: http://www.sec.gov.ph/laws/memorandumcircular/CY%202013/sec%20memo%20no.%2013,%20s2013.pdf
“c. The firm [3rd party who will do the valuation/fairness opinion] shall adopt more than one valuation methodology and compare the values derived from using different methodologies to minimize the risk that the opinion is unreliable. In addition to referencing with the quoted price of the subject equity securities, valuation methodologies include balance sheet valuation or book value, dividend discount model, pric/earnings ratio, and free cash flow approach.”


@bajoyjoy,

Malaking kabalbalan talaga ng Lucio Tan Group na mag-alok ng mahigit piso at trenta sentimos sa mga minority shareholders ng PAL.  Ito ay ginamitan ng teknikalidad na isang malaking panloloko sa mga investors.  Kaya nga ba wala akong tiwala na maglagak ng pondo sa isang kumpanya na kontrolado ni Lucio Tan.

If SMC controlled 12.169 Billion shares divide by 58.5 Billion pesos, then actual estimated purchased price was about 4.80 pesos per share.  This amount per share MUST be the offer price of LT group for minority shareholders.

We need SEC and PSE to ACT on the shenanigans beings employed by LT groups' accounting & legal magicians.
Grabeng discrepancy ano?  It means binili ni Lucio kay Ang at a price of 4.8, tapos ang minority 1.13 lang ang halaga? But I noticed, voluntary tender offer pala itong sa PAL hindi mandatory TO, so malamang lumusot na naman sila by mere technicality. But still, I guess the point of wilch is true. Kahit sabihin nating merong written rules and laws protecting small investors, in this case at iba pang stocks like NXT na naging JAS na ngayon, kawawa pa rin talaga ang minority shareholders, walang magagawa kung basta na lang magdesisyon ang may-ari magbenta at an unreasonably low price.


bajoyjoy

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Reply #5 on: Oct 23, 2014, 03:06 PM

@bauer, this news article from inquirer says something else about the valuation...

MANILA, Philippines–Businessman Lucio Tan on Wednesday launched a voluntary tender offer priced at a sharp discount to buy out minority shareholders of flag carrier Philippine Airlines and its listed owner PAL Holdings Inc., according to a regulatory filing.

Tan’s offer valued PAL Holdings at P1.19 a share, about 78 percent below the company’s market value before the deal was announced, the filing showed.

For Philippine Airlines, Tan is offering P0.31 a share.

The offer would run through Nov. 19, it said.

The deal, undertaken using two privately held companies owned by Tan, was priced at the “same economic terms” used to acquire conglomerate San Miguel Corp.’s 49-percent stake for over $1 billion last month.

That transaction ended San Miguel’s two-year stint as a stockholder and airline manager of Philippine Airlines.

Tan’s group said the exercise was aimed at offering minority shareholders the same chance to exit PAL as SMC.

However, the intention was to keep PAL Holdings a publicly listed company, Philippine Airlines general manager Jaime Bautista said last week.

In explaining the valuation, Tan’s group said its offer was “significantly higher” than the range of fair values determined by Unicapital Inc., which was hired as independent third-party valuator.


The offer will be conducted through Tan-controlled entities Buona Sorte Holdings Inc. and Horizon Global Investments Ltd., according to a disclosure filed with the Philippine Stock Exchange last week.

Trustmark Holdings Corp., a company controlled by Tan, currently owns 89.78 percent of PAL Holdings which, in turn, owns 98.27 percent of Philippine Airlines Inc.

Philippine National Bank’s Trust Banking Group is PAL Holdings’ tender offer agent, while PNB Securities is Philippine Airlines’ tender offer agent, a published notice showed.

Earlier this month, Tan’s group signaled that it would take a more conservative stance in running the airline and could defer aircraft orders from France’s Airbus, which were part of SMC’s refleeting program for the flag carrier.

The carrier, which has seen its market share and margins decline partly due to the entry of aggressive budget carriers, is still aiming to end 2014 with a profit, Bautista said in a previous interview.

PAL Holdings posted a profit in the second quarter—a traditionally busy period for airlines due to the summer months.


:scratch: :think:


wilch23

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Reply #6 on: Oct 24, 2014, 11:20 AM
So there is a required mandatory tender offer to the minority shareholders every time someone buys 35% or more of a company.
On top of this, if the shares bought is less than 35% but will result in an accumulated total of over 50%, a mandatory tender offer to the minority shareholders should be extended.
The tender offer shall be at the same price as the latest stock price used by the one who got at least 35% or who accumulated over 50%, right?

Assuming we are correct, how come when SMC bought 49% of PAL, no such tender offer was made? Not even a whimper was heard from the PSE nor form the SEC.

Now that LTG is buying back that 49%, same thing - no mandatory offer.

Note: i think the computation of 4.8/share paid for the SMC shares is incorrect.

The announced price paid for the shares is only around $500M
The excess was supposedly for the advances made by SMC to PAL.
So the price paid was more like 2.60/share.
This is still way more than the 1.19 offer minority shareholders of PAL are getting from LTG now.
Incidentally PAL is selling at around 4.85 in the PSE.

Why a high valuation? I suspect LTG is propping up the price. Why?
To hit 2 birds with 1 stone. High valuation in anticipation of an investor who will come in (LTG get paid more since negotiated price is usually based on the stock market price).
2nd bird, To ensure loans using PAL shares as collateral will be secured without additional cash or collateral.

Sayang, small investor lang ako. Hay...


wilch23

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Reply #7 on: Oct 24, 2014, 11:27 AM

MANILA, Philippines–Businessman Lucio Tan on Wednesday launched a voluntary tender offer priced at a sharp discount to buy out minority shareholders of flag carrier Philippine Airlines and its listed owner PAL Holdings Inc., according to a regulatory filing.

Tan’s offer valued PAL Holdings at P1.19 a share, about 78 percent below the company’s market value before the deal was announced, the filing showed.

For Philippine Airlines, Tan is offering P0.31 a share.

The offer would run through Nov. 19, it said.

The deal, undertaken using two privately held companies owned by Tan, was priced at the “same economic terms” used to acquire conglomerate San Miguel Corp.’s 49-percent stake for over $1 billion last month.

That transaction ended San Miguel’s two-year stint as a stockholder and airline manager of Philippine Airlines.

Tan’s group said the exercise was aimed at offering minority shareholders the same chance to exit PAL as SMC.

However, the intention was to keep PAL Holdings a publicly listed company, Philippine Airlines general manager Jaime Bautista said last week.

In explaining the valuation, Tan’s group said its offer was “significantly higher” than the range of fair values determined by Unicapital Inc., which was hired as independent third-party valuator.


So how come he paid SMC an even higher price? Me thinks that's only because he sold those same shares to SMC at a premium also. Since he wanted it back, he had no choice but to pay back SMC.

:scratch: :think:

I read in the news that LTG claims since there is no change in the controlling party, no mandatory tender offer is required. I guess our previous assumptions were wrong?


thisistheday

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Reply #8 on: Oct 24, 2014, 11:38 AM
I read in the news that LTG claims since there is no change in the controlling party, no mandatory tender offer is required. I guess our previous assumptions were wrong?

I don't think their lawyers are too stupid to make that mistake. Most probably, they have studied it from their side (legal loopholes) to avoid any issues with the law. They would not want to buy the minority so they had to set a price so low nobody in his right mind would be willing to sell, so it wont get delisted. I think scenario is not very different from previous cases.


Wills

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Reply #9 on: Oct 24, 2014, 12:39 PM
I don't think their lawyers are too stupid to make that mistake. Most probably, they have studied it from their side (legal loopholes) to avoid any issues with the law. They would not want to buy the minority so they had to set a price so low nobody in his right mind would be willing to sell, so it wont get delisted. I think scenario is not very different from previous cases.


Makes sense!



wilch23

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Reply #10 on: Oct 24, 2014, 01:06 PM
I don't think their lawyers are too stupid to make that mistake. Most probably, they have studied it from their side (legal loopholes) to avoid any issues with the law. They would not want to buy the minority so they had to set a price so low nobody in his right mind would be willing to sell, so it wont get delisted. I think scenario is not very different from previous cases.

What mistake would that be?


bajoyjoy

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Reply #11 on: Oct 24, 2014, 02:21 PM
I don't think their lawyers are too stupid to make that mistake. Most probably, they have studied it from their side (legal loopholes) to avoid any issues with the law. They would not want to buy the minority so they had to set a price so low nobody in his right mind would be willing to sell, so it wont get delisted. I think scenario is not very different from previous cases.
Yup, i think this is their intention from the beginning, LT holds 51% even when Ang came in. "Control" remained with LT so no change in control even with the 49% buyback, consolidated lang ung full ownership with LT.

If they want to attract investors they will use the high valuation, but to pay up minority shareholders or even for tax purposes, they will use the low valuation.

It is clearly a circumvention of the MTO, but it is legal to defeat the system especially here in our beloved country.



wilch23

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Reply #12 on: Oct 24, 2014, 02:56 PM
So even if a person buys more than 35% of a listed company, he is not obligated to make a tender offer as long as there is someone with a bigger share than him?
What if he bought control of the company with less than 35% of the company?



bauer

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Reply #13 on: Oct 24, 2014, 03:31 PM
So even if a person buys more than 35% of a listed company, he is not obligated to make a tender offer as long as there is someone with a bigger share than him?

^ The rule of SEC is clear.  If someone buys a block of shares that will make the buyer own more than the majority stake in a publicly listed company, a mandatory tender offer for the SAME price must be initiated by the buyer to all minority shareholders.

LT group is "looking for technical loopholes" like the buyer is already a majority owner so there was no change in control, etc. (such b***sh**!) because LT group did not state the reason they bought the stake in order to gain "management control".  They are playing with words and the true intention of our laws.

We need our government to ENFORCE FAIR PLAY.  Ano ba PSE magiging bingi, bulag, at pipi ka ba? 

LT group should offer THE SAME PRICE paid to SMC!  No ifs or buts.  SEC must ENFORCE the rules!
« Last Edit: Oct 24, 2014, 03:41 PM by bauer »


bauer

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Reply #14 on: Oct 24, 2014, 03:34 PM
What if he bought control of the company with less than 35% of the company?

^ Your question was already answered by @bajoyjoy, just back read.


 


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