Analysts view the move as preparatory to Smart Communications’ planned acquisition of parent Philippine Long Distance Telephone Co.’s (PLDT) stake in Piltel. After Smart was able to convince Piltel creditors to sell 69 percent of aggregate debts held by them to the former, the country’s leading mobile phone company is now offering to buy out PLDT’s 45-percent stake in Piltel.
PLDT’s stake in Piltel consists of 767 million common shares and 59 million series K PLDT preferred shares convertible into Piltel common shares at a ratio of 170 to one. The increase in Piltel’s authorized capital stock will accomodate the conversion of the PLDT preferred shares into Piltel common shares.
The increase in authorized capital will be subject to the approval of stockholders owning or representing more than two-thirds of the outstanding capital stock at a special meeting scheduled Sept. 3. The increase also needs the approval of the Securities and Exchange Commission.
In a disclosure to the Philippine Stock Exchange, Piltel said the P12.8 billion will be divided into three classes, namely 12.06 billion shares of common stocks with par value of P1 each; 120 million shares of class I preferred stock with par value of P2 each; and 500 million shares of class II preferred stock with par value of P1 each.
Piltel’s previous authorized capital of P2.5 billion consisted of 2.76 billion shares of common stock with par value of P1 each; 12 million shares of class I preferred stock at P2 each; and 500 million shares of class II preferred stock with par value of P1 each.
Smart and Piltel together account for 57 percent of the local mobile market with Globe Telecom Inc. holding a 40 percent market share, and the remainder, by Gokongwei-owned Digitel Mobile.
Piltel, currently in the third spot in terms of subscribers, ended 2003 with a total of 2.9 million subscribers, representing 13 percent of the market, under its Talk ‘N Text brand.
Market leader Smart, had more than 13 million subscribers as of January this year. It booked a net income of P16.1 billion last year, that boosted parent firm’s total profits P11.2 billion, despite provisions.
PLDT said the successful completion of the Smart transaction with Piltel creditors will lead to the rationalization of its wireless business segment, with Smart gaining full access to Piltel’s Talk ‘N Text’s expanding subscriber base and improving revenue streams.
"PLDT’s wireless group is expected to realize benefits from the closer operational alignment of Smart and Piltel, an increase in the share in Piltel’s revenue streams and certain cash and tax savings," PLDT said.
However, PLDT noted that these positive effects would be partially offset by increased interest expenses and foreign exchange exposure that would come from the Smart’s issuance of new debt.
After having received consents from its creditors, Smart said it intends to commence the process of acquiring PLDT’s equity interests in Piltel and expects to complete this part of the transaction later in the second half of 2004. "Considering Piltel’s supernatural return to health, these two transactions will enhance PLDT’s profit and cash flow starting this year," PLDT chairman Manuel Pangilinan said.