Smart mulls court action over ETPI shares sold to ISM

Smart Communications may go to court to assert its right of first refusal over shares in Eastern Telecommunications Phils. Inc. (ETPI) sold by Aerocom Investors and Managers to publicly listed ISM Communications.

Aerocom disposed of its 17.7-percent stake in ETPI to ISM, a company identified with former Trade Minister Roberto Ongpin.

Smart owns a 9.8-percent equity interest in ETPI; 40 percent is owned by Australian Gigahertz Network International and 18 percent by Pablo Lobregat (Aerocom group); and the remainder consists of sequestered shares now under the Presidential Commission on Good Government (PCGG).

The sale involved 4.6 million ETPI shares which will be transferred by Aerocom to ISM in exchange for 6.8 billion common shares of the latter. The share-swap agreement provides that ISM will issue 6.8 billion new common shares which shall be taken from an increase in its authorized capital stock, which has recently been approved by the shareholders.

Section 39 of the Corporation Code provides that all stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto.

"Since none of the exceptions apply, Smart and all other ETPI stockholders should be given the option to exercise the right of first refusal over the reported sale by Aerocom of its shares to the Ongpin group," Smart legal counsel Rogelio Quevedo said.

Quevedo told The STAR that if ETPI and Aerocom insists on not giving Smart the right of first refusal over the subject shares, then Smart may be left with no recourse but to go to court to assert its right. The Regional Trial Court has jurisdiction over intra-corporate disputes.

The right of first refusal is granted by ETPI to its shareholders under Article 10 of its articles of incorporation, stating that "in the event any stockholder desires to dispose, transfer, sell or assign any shares of stock of the corporation, except in the case of any disposal, transfer, sale or assignment between or among the incorporators or to corporation controlled by the incorporators, the offeror shall give a right of first refusal to the corporation."

In the event that the corporation shall refuse or fail to accept all of the offered stock, then the latter shall be offered to all stockholders of record of the corporation (except the offeror) to purchase the offered stock pro rata, at a price and upon terms and conditions specified by the offeror based upon a firm, bona fide, written cash offer from a bona fide purchaser.

If the corporation fails or refuses within 30 days to accept the offer for all of the offered Stock, ETPI’s articles of incorporation requires the corporate secretary to transmit a copy of such offer to each stockholder of record other than the offeror who will have another 30 days to exercise their right of first refusal.

According to Smart, no such notification was made by ETPI to its shareholders, in violation of the procedure laid out in the articles of incorporation.

ISM Communications, on the other hand, said that Smart does not have a right of first refusal over this transaction. It said that since the transaction between Aerocom and ISM over the subject ETPI shares does not involve a cash offer, the provisions of ETPI’s articles of incorporation on the right of first refusal of existing ETPI shareholders do not apply.

ISM general counsel Severino Sumulong, in response to a letter sent to ETPI by Picazo, Buyco, Tan, Fider and Santos Law Office (Smart’s external counsel) regarding the purported right of first refusal of Smart, pointed out that Article 10 clearly shows that it shall apply only to a cash sale of ETPI shares wherein the other stockholders of record are entitled to purchase the offered stock pro rata based upon terms and conditions specified based upon a "firm, bona fide written cash offer from a bona fide purchaser."

Sumulong also noted that under the same article, the purchasing stockholder who decides to exercise his right of first refusal is required to transmit to the corporation with his acceptance cash, or a certified cash, or a certified check drawn on a Philippine bank. "Consequently, an exchange and transfer of shares which do not involve any cash payments cannot be considered as within the purview of Article 10 of ETPI’s articles of incorporation," he said.

ISM plans to increase its stake in ETPI and has said that it is in talks with the Australian group that controls 40 percent of ETPI for the acquisition of said interest.