Everyone and everything has a price

The outstanding offer by Banco de Oro – currently ranked as sixth largest in the country – to merge with Equitable PCI Bank – which is presently the third largest in rank – and to become the surviving entity smacks of spunk and calculated wiliness.

EPCIB, even after declaring a good performance during the first three quarters of 2005, continues to be hobbled by the Jose Velarde controversy. At that time, more than six years ago, EPCIB was selling at P96.76 per share; it is now ‘undervalued’ at P63.

In its released third quarter report last year, EPCIB declared a revenue growth of almost 20 percent, not bad if compared to the banking sector’s 21-percent growth average. Net income, in fact, was 40 percent higher.

Millions of Filipinos who have a stake in EPCIB through their membership in the Social Security System (SSS) and the Government Social Insurance System (GSIS) have to watch out how this merger proposal turns out. SSS, after all, owns about 29 percent of EPCIB, while GSIS has around 12.4 percent, or a combined powerful 42 percent.

Both pension funds have been shrouded with speculations of bankruptcy, the fouled EPCIB acquisition and government’s continued meddling in their funds being a couple of reasons for the rumored financial stress.

Both pension funds had bought their EPCIB shares at an average price of P92 during the Estrada administration, only to wake up one morning to realize that their combined investment of P16 billion had been whittled down to roughly P9.2 billion in the aftermath of the Jose Velarde investigations.

Merger of ‘equals’

Now, BDO is offering "a merger of equals" with EPCIB after successfully gaining a foothold in the bigger bank when it bought out the Go family’s 24.7 -percent ownership. Together with its parent, SM Investments, the BDO group now owns more than 30 percent of EPCIB. BDO is proposing a share swap, offering 1.6 BDO shares for every one of EPCIB. Using Wednesday’s closing price of P34.50 per BDO share, this values EPCIB at P55.20 per share, definitely lower than its current market price of P63 per share.

This is all not sitting well with GSIS’s Winston Garcia who has strongly come up with statements that short of condemns the BDO proposal. If you really think about it, GSIS is playing this game smartly. With its stake a little more than an eighth of EPCIB, the government’s pension fund does not really have a big say especially if SSS will eventually agree to the BDO proposal.

SSS clearly holds the key to the merger given its bigger stake in the bank. But its president, Cora dela Paz, manages to keep her cards close to her chest and has remained mum since that botched BDO-SSS deal more than a year ago. There are rumors that Dela Paz may not stay long as SSS president. If this is true, whoever is the successor would be a much-sought after personality as BDO pursues its merger plans.

An approval of two-thirds or 67 percent of EPCI’s shareholders is needed to break the impasse and move ahead with the merger plan. BDO’s Jan. 31 deadline, however, has lapsed without any agreement.

EPCIB directors have repeatedly announced that the merger offer is still under study, while BDO continues to sit out the indecisiveness of other EPCIB shareholders by saying that it is willing to extend the proposal’s deadline. So far, everything continues to be silent on all fronts – except GSIS’s.

Merger of ‘equals’

So far, Winston Garcia cannot be accused of unfairly selling out the pension fund and its EPCIB shares if ever SSS capitulates in favor of the BDO offer. Recently, GSIS put out several print ads for the block sale of its entire stake in EPCIB of about 90 million shares at P92 each or a total of about P8.3 billion.

Now, whether there will actually be takers to its ads remains to be seen. Still, Garcia never fails to update all; latest, he announced that two groups (which he did not identify) had offered to purchase GSIS’s stake. It could all be braggadocio, but for the members’ sake, I hope there is something really cooking.

In the meantime, it seems that the only beneficiaries to this merger proposal are the market speculators, as can be seen in the volatility of EPCI and BDO’s share prices. As one brokerage house says, EPCIB’s search for a white knight is fanning speculative interest on the stock.

On the part of BDO, however, concerns that it may have to sweeten the offer to get the approval of shareholders are putting pressure on its share price.

Merger of ‘equals’

Perhaps, there is really still room for BDO’s offer to get better. BDO, after all, is buying into a bank so it could catapult itself to becoming the third largest in an industry that is going through another round of mergers and acquisitions. Acquiring leadership position in the banking industry inadvertently comes at a premium price.

Any improvement in EPCIB share prices will be good for GSIS and SSS. But to dream that GSIS – and even SSS – will get top price equivalent to what they shelled out more than six years ago could just be a little too much.

Let’s admit it; EPCIB has gone through a lot in recent years since those days of massive deposit withdrawals when it was linked to the controversial Jose Velarde account. But even with more stringent regulations, EPCIB – despite its being the current third largest – will have to beef up its eroded asset and capital base. It would have to allot more provisions for probable losses that may arise from soured loans.

Simply put, all parties will need to agree on an honest-to-goodness valuation of EPCIB shares. The sooner all partisan stakeholders accept this, only then will things really start moving. So who or what can put an end to all of this? Everyone and everything has a price, my friends.

Energy self-sufficiency – an illusive dream

Energy is one factor that has burdened the local economy preventing it from taking off during the past years. Its toll on the economy keeps on escalating as the cost of energy in the world market increases and the country’s reliance on imported energy remains unabated.

What are the priority measures that the Department of Energy is currently pursuing to facilitate economic growth? What is being done to address the relatively high electricity rates in the country compared to the rest of the Asian region?

"Breaking Barriers" on IBC-TV13 (12 mn every Thursday) will feature on Thursday, 23rd February 2006, Energy Secretary Raphael P. M. Lotilla. Join us break barriers and gain insights into the views of Sec. Lotilla on various issues related to the energy situation in the country. Watch it.

Search for the Philippine Poker Champion

The search for the first Philippine Poker Champion continues as non-wager satellite tournaments are held weekly in various sites accredited by the Philippine Poker Tour. The sites and schedules are as follows: Valle Verde Country Club in Pasig (every Saturday, 12:20 p.m.); San Mig Alabang Town Center in Alabang (every Wednesday, 7 p.m.); Pioneer Highlands in Mandaluyong City (every Thursday, 7 p.m.) and Milky Way at Las Pinas (every Thursday, 7 p.m.). For confirmation and reservations, please call the secretariat (c/o Cindy) at tel. nos. 817-9092 or 812-0153.

Winners of the non-wager satellite tournaments earn a set for the Main Event scheduled on 8th and 9th April 2006 at the Airport Casino Filipino Parañaque.

One may also play at the Main Event by registering and paying the full tournament fee at Philippine Poker Tour offices.

Visit www.PhilippinePokerTour.com for more details about the search for the first Philippine Poker Champion being conducted in partnership with Solar Entertainment and The Philippine Star.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected] or at [email protected]. If you wish to view the previous columns, you may visit my website at http://www.bizlinks.linkedge.biz.