Rivals Philippine Long Distance Telephone Co. (PLDT) and Digitel Telecommunications Philippines Inc. (Digitel) have crossed path once again a decade after the Gokongwei group attempted to take over the phone giant.
At a news conference on Tuesday, PLDT and Digitel announced that they have entered into a share-swap deal. PLDT is buying 51.55 percent of Digitel valued at P69.2 billion.
PLDT will be buying the shares from JG Summit Holdings Inc., which holds 3.277 billion common shares in Digitel. Apart from this, PLDT will free up Digitel from its debts worth P34.1 billion. PLDT will also purchase a zero-coupon convertible bonds issued by Digitel. In all, this transaction is valued at P69.2 billion.
PLDT chairman Manuel Pangilinan said this would be settled through the issuance of “one new PLDT share for every P2,500 consideration payable for the assets.”
The firm will also conduct a tender offer for the remaining Digitel shares, equivalent to 48.45 percent of its issued stock, held by the public. Assuming full acceptance by the minorities of Digitel, the total transaction consideration would be P74.1 billion.
PLDT will seek shareholders approval for the issuance of the new common shares and regulatory approvals for the transaction. This transaction is intended to be completed by the end of the second quarter.
JG Summit chairman James Go will join the board of directors of PLDT.
Funding will come from First Pacific Co. Ltd., which currently holds a 26-percent stake in PLDT, and the NTT group, which has a 21-percent interest in the phone giant, Pangilinan said, adding that “there will be no impact on the cash flow of PLDT. They are financing the entire transaction.”
Proceeds from the transaction will be used by JG Summit to finance significant investments in petrochemicals, power and other infrastructure projects like airport development, Go said.
“It’s a win-win for both of us. I believe they maintain a significant stake in PLDT and maintain cash. There are a lot of benefits that both firms will enjoy,” said Pangilinan, who added that he is open to working with the Gokongwei group for any joint power-related projects.
Capitalizing on Sun
PLDT intends to keep the mobile operations of Digitel separate and intact, and to maintain and capitalize on Sun Cellular’s operations and significant brand equity to continue serving specific segments of the market, especially those who prefer “unlimited” type of services.
“The combined market share for revenue wise is between 66 percent and 67 percent based on the figures reported as of end-2010. From a revenue standpoint, it does move our market share revenue by about 12 percent,” said Pangilinan.
Jose Vistan, research head at stock brokerage firm AB Capital Securities Inc., said the deal may prove beneficial for the telecommunications players in general.
“There really was a need to make a move to address declining margins. So [PLDT] bought out a competitor that was killing them in terms of pricing. And fewer players means more pricing power for the companies,” he said in a phone interview.
On the other hand, this may result in higher costs being passed on to consumers—a move that could attract increased scrunity from regulating bodies in the medium term, he said.
“I’m not saying that will happen with certainty. But in the Philippines, anything is possible,” Vistan said, responding to a query on whether stricture legislation covering telco players will be passed as a result of this deal.
PLDT has 45.6 million cellular subscribers, while Sun Cellular has 14 million. On the fixed-line business, PLDT has 1.8 million subscribers, while Digitel has 450,000.
PLDT can quickly provide enhanced broadband services in Digitel’s service areas. The combined broadband subscribers of PLDT and Digitel stood at 2.5 million.
Digitel’s subscribers are also expected to benefit from PLDT’s extensive infrastructure, particularly its nationwide fiber-optic network and its international cable and satellite facilities.
PLDT envisages significant cost efficiencies from the transaction via capex optimization, collocation of base stations, consolidation of overlapping technical systems, implementation of shared services, bulk purchasing of network equipment, communication devices and other materials and elimination of other duplicated costs. Improved network utilization and service quality can also be achieved through complementary technologies and greater network density.
‘Forget the past’
Official present during the briefing said that talks to conclude this deal started three years ago.
Pangilinan said it makes sense for both companies to enter into this deal amid the Gokongwei group’s previous attempt for a hostile takeover. “That was in the past. That was 10 years ago. In fairness to them, they are ok. Let’s forget the past,” he said.
This transaction, touted as the biggest yet in the history of the Philippine telecoms, is expected to further heat up competition in the market.
“We expect competition within the industry to remain very robust given that other operators, including new entrants, are formidable and well-funded,” said Pangilinan.
Pangilinan was referring to the telco interest of San Miguel Corp., which has a substantial stake in Liberty Telecoms, Bell Telecoms and is planning to acquire Express Telecom.
When sought for comment San Miguel president Ramon Ang said in a text message “We are happy for John Gokongwei. It’s a very good deal for them,” he said. “It is better now,” he added when asked how the deal would affect his plans to fortify his group’s telco business.
For its part, Globe Telecom said it will remain focused on its strategy of delivering superior, relevant services to its customers, and build on the momentum that has been created since the second half of 2010.
“The Digitel and PLDT merger will not fundamentally change our strategy. We stand ready to compete, and to defend and grow our market share. 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,” said Globe president Ernest Cu.
Globe ended the year with a mobile SIM base of 26.5 million, up 14 percent from prior year’s level. --With Miguel R. Camus
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