New firm to become single biggest stockholder in Meralco

MANILA, Philippines - Metro Pacific Investments Corp. (MPIC) and its sister firm Pilipino Telephone Corp. (Piltel) have merged their holdings in Manila Electric Co. (Meralco) into a new company that will become the single largest shareholder of the power utility giant, a move that will give the group access to more financing as it further widens its stake in Meralco.

MPIC and Piltel have agreed to transfer their combined 28.2 percent interest in Meralco into Beacon Electric Asset Holdings Inc., a new unit equally owned by the two companies.

Beacon Electric, which has a pending application with the Securities and Exchange Commission for an increase in its authorized capital stock to P5 billion, will acquire the Meralco shares from MPIC and Piltel for P150 per share. This development followed the signing of an option agreement between Beacon Electric and the Lopez-owned First Philippine Holdings Corp. over 74.7 million common shares of Meralco, equivalent to 6.7 percent of the power utility firm.

The group, through Beacon, was given two months or from March 15 to May 15, 2010 to exercise its option to buy more shares of Meralco. The Metro Pacific/Piltel Group will acquire the shares for P300 apiece or a total of P22.4 billion as provided under the deal entered into in November last year.

MPIC and Piltel also agreed to assign to FPHC property dividends in respect of the 223 million and 163.603 million Meralco common shares, owned by Piltel and MPIC, respectively, on Rockwell Land Corp.’s shares of Meralco as and when declared and distributed by the board of directors of the power utility firm.

“Both MPIC and Piltel consider their Meralco stakes as a strategic investment and their consolidation in Beacon Electric allows them to strengthen their ownership and maximize returns over the long term,” said Manuel V. Pangilinan, chairman of both MPIC and Piltel.

To fund the acquisition of additional Meralco shares, Beacon Electric has entered into a term sheet with a syndicate of banks for a loan of up to P18 billion over a 10-year period.

Jose Ma. K. Lim, chief executive officer of MPIC, said the facility, which will be secured by a certain number of Meralco shares to be acquired by Beacon Electric, will be divided into a fixed rate tranche of P11.8 billion and a floating rate tranche of up to 6.2 billion.

Pangilinan, who is also chairman of PLDT, the country’s most valuable listed firm, will chair Beacon Electric’s five-member board.

If the call option is exercised, the amended shareholders agreement will allow the Lopez Group to nominate one Meralco director for their remaining 6.7 percent Meralco stake while Beacon Electric will be allowed to nominate four Meralco directors. Together, the Lopez Group and Beacon Electric will be able to nominate five out of the nine non-independent directors of the power retailer.

Hong Kong-based conglomerate First Pacific Co. Ltd. has agreed to subscribe to P6.6 billion worth of MPIC’s three-year convertible bonds to partially fund its subscription of Beacon Electric shares.

Pangilinan pointed out that the standstill arrangement preventing the sale of any of the remaining Meralco shares owned by the Lopez Group to third parties for a period of three years, “serves to stabilize the ownership”of the country’s largest power distributor.

The Lopez Group sold a 20 percent stake in Meralco to PLDT/Piltel in March 2009 for $414 million and votes its remaining holdings with the Pangilinan-led group.

Together they control 48 percent of the utility while about nine percent is held by the public.

San Miguel Corp., on the other hand, holds a 27 percent interest in Meralco while ally Global 5000 Investments, headed by former Trade and Industry Minister Roberto V. Ongpin, owns about 10 percent.

Meralco owns the country’s largest power franchise and has become an attractive target after regulators allowed it to raise power tariffs by up to 27 percent, its first hike since 2003.