PHILIPPINE LONG DISTANCE Telephone Co. (PLDT) yesterday moved to increase its dominance of the local telecommunications industry, announcing that it would be taking control of a Gokongwei-led competitor.
PLDT will acquire a 51.55% stake in Digital Communications Philippines, Inc. (Digitel) -- the firm behind the low-price Sun Cellular brand -- from JG Summit Holdings, Inc. in a transaction valued at P69.2 billion. A mandatory offer to minority investors for the rest of the firm, if taken up fully, is expected to bring the deal’s total value to P74.1 billion.
JG Summit, in return, will get a 12.8% stake in PLDT.
The purchase involves 3.28 billion shares in Digitel along with zero-coupon convertible bonds and inter-company advances owed JG Summit, PLDT President Napoleon L. Nazareno said in a press conference.
PLDT will swap one new share for every P2,500 worth of Digitel assets to be acquired.
Minority shareholders were given the option to sell at a discounted P1.60 apiece or swap their stakes for PLDT’s shares at a premium of P2,500 per.
The deal, which officials said would result in a combined cellular market share of some 67% -- no estimates were provided regarding other services -- is expected to be completed by end-June, the two companies said.
The Sun Cellular and Smart cellular brands will be kept separate, while "Digitel fixed line operations can complement those of PLDT’s."
Lance Y. Gokongwei, president and chief operating officer of JG Summit Holdings, said the share swap was a "very difficult decision" that would help maintain their participation in the industry.
JG Summit Holdings will be given one board seat in PLDT as a result of the transaction, he said, with the post going to JG Summit Chairman James L. Go.
Rival firm Globe Telecom, Inc., in a statement, said it was prepared to keep competing in the mature industry.
"The Digitel and PLDT merger will not fundamentally change our strategy. We stand ready to compete, and to defend and grow our market share," Globe President and CEO Ernest L. Cu said.
"This industry has always been intensely competitive, and we have been a strong challenger to a dominant incumbent all this time. We will continue to focus on delivering relevant products to our retail and corporate customers, providing differentiated customer service and enhancing our network to deliver the best experience possible to our subscribers," Mr. Cu added.
Jose Mari Lacson, analyst at Campos, Lanuza & Co., Inc., said: "PLDT is not out to kill the competition, but growth of Globe will be limited."
A price war that was accelerated by the entry of Digitel has eroded telco margins in the country’s saturated market, with penetration at around 90% against a population estimated to be nearing 100 million.
PLDT Chairman Manuel V. Pangilinan said the deal would dilute stakes held by Hong Kong’s First Pacific Co. Ltd. and Japan’s NTT Communications. First Pacific’s stake will drop to 22% from 26% while NTT Communications’s stake will decrease to 18% from 21%.
PLDT -- valued at $8.9 billion -- saw it shares close unchanged at P2,036 per yesterday ahead of the deal’s announcement. The firm will come under one-hour trading halt starting at 10:00 a.m today, the Philippine Stock Exchange said.
JG Summit and Digitel -- valued at $269 million -- were last traded on Monday at P24.50 and P1.83 per share, respectively. Trading was suspended yesterday on the firms’ request.
Shares of Globe Telecom -- valued at $2.1 billion -- closed at P746 apiece yesterday, 7% or P49 higher.
Mediaquest Holdings, Inc., a unit of the Beneficial Trust Fund of PLDT, has a minority stake in BusinessWorld. -- reports from K. A. Martin and Reuters
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