Smart offers to buy out Piltel minority owners

MANILA, Philippines - Smart Communications has offered to acquire from the minority shareholders of subsidiary Pilipino Telephone Corp. (Piltel) the shares held by them at a premium, in a bid to consolidate Smart’s ownership in Piltel.

At present, Smart owns 92.8 percent of the total outstanding common shares of Piltel.

Last Friday, Piltel announced that at a meeting held earlier that day, its board of directors was informed of Smart’s intention to make a tender offer to Piltel’s minority shareholders.

Philippine Long Distance Telephone Co. (PLDT) chairman Manuel Pangilinan, who chairs both Smart and Piltel, said that if Smart succeeds in acquiring a significant portion of Piltel stake held by minority shareholders, then Piltel might by delisted from the local stock exchange.

Subject to shareholder approval at the annual general meeting scheduled for June 30, Piltel has said it will sell and transfer its cellular assets, subscriber base and Talk ‘N Text trademark to Smart.

Piltel is selling its GSM cellular mobile fixed assets to parent Smart at net book value. It will also license the use by Smart of the former’s Talk ‘N Text brand for which Smart will pay Piltel a lump sum royalty fee based on a percentage of projected net service revenues. Piltel will also transfer its existing Talk ‘N Text subscriber base to Smart in consideration of a one-time payment equivalent to the subscriber acquisition cost which Smart would have incurred for the acquisition of its own subscribers.

The tender offer and the transfer of Piltel’s assets to Smart, once completed and implemented, will transform Piltel into a holding company with its 20 percent holdings in Manila Electric Co. (Meralco) as its major asset.

Piltel is acquiring a 20-percent stake in Meralco from the Lopez-owned First Philippine Holdings for P20 billion.

Pangilinan has said that most of the P20 billion will be from internally generated funds while some will be sourced from loans. “The funding is already in place. We hope to close the deal soon,” he emphasized.

Smart’s tender offer is intended to provide an exit opportunity for Piltel’s minority shareholders, given the change in Piltel’s business direction, Pangilinan explained.

The country’s biggest mobile phone service provider is offering a tender offer price of P8.50 per common share to acquire the 839,979,054 shares held by Piltel’s minority shareholders.

The offer price is at a 15 percent premium over the P7.40 share price when the proposed transactions were first announced, 13 percent premium over volume-weighted average share price from Jan. 2 to June 18 of P7.51, 11-percent premium over average share price for 2009 of P7.69, five percent premium over Piltel’s closing share price on June 19 of P8.10, and 20 percent premium to the average share buyback price of P7.09.

An independent committee from the Piltel board had been conducting a review of Smart’s anticipated tender offer, in consultation with CLSA Exchange Capital, the independent financial advisor appointed by the committee for this purpose, to ensure that the terms of the tender offer are fair and reasonable from the perspective of Piltel’s minority shareholders, company officials said.

The committee and CLSA are expected to complete their review by June 25.

The tender offer period will begin on July 1, 2009 at 9:30 am and end on July 29, 2009 at 12 noon. The tender offer is for cash and Smart said it will accept any and all shares tendered, subject to fulfillment of requirements. The tender is not conditional on any minimum number of shares being tendered, it added.

ATR KimEng Securities has been appointed the tender offer agent.

PLDT officials have earlier explained that these arrangements, once completed and implemented, will serve to consolidate the PLDT Group’s cellular business under Smart, thereby maximizing revenues streams and eliminating any lingering regulatory issues relating to the traffic between the two companies.