Philippine Long Distance Offers to Buy Rival Digital Telecom
March 29, 2011, 5:24 AM EDTBy Ian Sayson
(Updates with comments from investors starting in third paragraph.)
March 29 (Bloomberg) -- Philippine Long Distance Telephone Co., the nation’s biggest phone company, offered to buy Digital Telecommunications Philippines Inc. in a deal valued at 74.1 billion pesos ($1.7 billion), removing one of two rivals.
JG Summit Holdings Inc. and other parties agreed to sell their 3.28 billion shares, or a 51.55 percent stake, in the company known as Digitel, Philippine Long Distance said today in a statement. PLDT, as the buyer is known, said it will issue new shares at 2,500 pesos each for the purchase and will offer to buy the rest of Digitel. The value includes debt obligations and assumes acceptance by all shareholders.
“Some people think this transaction will tone down competition,” said Jerome Gonzalez, who helps manage about $68 million at Philequity Management Inc. “Digitel’s unlimited service allowed it to gain market share and gave the bigger players a hard time.”
Digitel triggered competition and eroded margins at PLDT and Globe Telecom Inc. when it offered plans with unlimited calls and text messages in 2004, a year after unveiling its own mobile-phone service. Digitel’s profit surged 65 percent last year, outpacing PLDT’s 1.1 percent increase and Globe Telecom’s 23 percent drop in net income.
PLDT said the purchase, which is scheduled to be completed by end of the second quarter, will include zero-coupon bonds convertible into 18.6 billion Digitel shares by June 30 that were sold to JG Summit. It also includes 34.1 billion pesos of advances JG Summit made to Digitel. The offer for the rest of Digitel may be in cash or shares and will be equivalent to 1.60 pesos per Digitel share.
Takeover Speculation
Digitel and parent JG Summit earlier today separately asked the exchange to suspend their shares after speculation of the unit’s sale led to gains. Digitel jumped 18 percent to 1.83 pesos in Manila trading yesterday, while JG Summit gained 8.2 percent to 24.5 pesos. PLDT closed unchanged at 2,036 pesos in Manila today before the announcement. The stock exchange imposed a one-hour trading halt on PLDT’s shares beginning at 9 a.m. tomorrow.
“In the face of muted revenue growth and elevated capital expenditure requirements, this transaction provides a solution” to these concerns, PLDT Chairman Manuel Pangilinan said. This “also benefits consumers and improves the country’s broadband infrastructure while enhancing shareholder value.”
Net income at Digitel jumped 65 percent to 429.6 million pesos last year from 2009, JG Summit said in a statement to the Philippine Stock Exchange March 18.
Separate Unit
Digitel’s Sun Cellular mobile-phone service will remain “separate and intact,” and continue to serve specific segments, particularly customers who prefer unlimited calls and text messages, PLDT said.
Digitel will add 450,000 fixed-line customers to PLDT’s 1.8 million customers. Digitel will also add half a million broadband Internet subscribers to PLDT’s 2 million customers, based on figures PLDT President Napoleon Nazareno and JG Summit Chairman James Go released today in a media briefing.
PLDT will have two-thirds of the nation’s mobile-phone revenue with the purchase of Digitel, Nazareno said. PLDT had 45.6 million cellular-phone subscribers at the end of 2010, and Digitel had 14 million.
Ownership Reshuffle
JG Summit said it will own about 12.8 percent of PLDT after the sale and it expects board representation. JG Summit said its stake will fall to 10.1 percent if an associate company of First Pacific Co. exercises an option to buy 5.81 million PLDT shares from it at 2,500 pesos each. First Pacific is PLDT’s biggest shareholder with a 26 percent stake.
The transaction will require approval from shareholders, the Securities and Exchange Commission, the stock exchange and the National Telecommunications Commission.
“Competition shouldn’t be an issue for regulators,” said Rico Gomez, who helps manage $1.47 billion at Manila-based Rizal Commercial Banking Corp. “The status quo may still continue because PLDT could use Digitel as the main vehicle to grab market share from Globe.”
--Editors: Lars Klemming, Linus Chua.
To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
