SEC moves to protect minority shareholders in takeovers

MANILA, Philippines - The country’s corporate regulator has come up with new rules to protect minority shareholders in companies subject to takeovers.

In a memorandum, the Securities and Exchange Commission (SEC) formulated the Guidelines on the Conduct of Valuation and Issuance of Fairness Opinion for investors wanting to acquire a listed company.

The regulations aim to “increase the reliability of fairness opinions being issued prior to the conduct of mandatory tender offer,” SEC said.

It was also issued to align SEC’s rules with best practices in other jurisdictions, it added.

The Securities Regulation Code requires that the price of the minority’s stocks subject to mandatory tender offer be “supported by a fairness opinion provided by an independent financial advisor or equivalent third party.”

A mandatory tender offer is triggered when an investor accumulates more than 51 percent of the total outstanding shares of a listed company. The acquiring entity should then offer to buy all shares held by minority stockholders.

Given the new rules, only independent firms accredited by the Philippine Stock Exchange can conduct valuation and issue fairness opinions, SEC said.

The regulator also issued several measures to ensure investor protection as shares are valued.

“An expert shall use more than one valuation methodology and compare the values derived from using different methodologies to minimize the risk that opinion is unreliable,” SEC said.

“If an expert’s valuation of a company differs from the price of the company’s securities prior to the announcement of a [tender offer], the expert shall comment on the difference and factors underlying it,” it added.

In the valuation reports, the expert is prohibited from disclosing prospective financial information including forecasts and projections to avoid misleading investors.

SEC said the fairness opinion should also contain all material assumptions and its reasons, and justification of the choice of methodologies.

The rules were released on the heels of several corporate takeovers in the local bourse.

In March, San Miguel Properties Inc. (SMPI) conducted a tender offer as part of its delisting procedure. It bought shares held by the public at P134.12 each, representing a steep discount compared with the previous closing of P700 each on Nov. 13, 2012.

Cosmos Bottling Corp. last month bought back shares of minority investors at P1.758 apiece, way below the last traded price of P3 on May 23, 2006.

Prior to the buyout, SMPI and Cosmos secured the independent opinion of financial advisers Maybank ATR Kim Eng Capital Partners Inc. and Navarro Amper & Co., respectively.