Megaworld flash-crashes on chaotic BIR shutdown drama

Confusion dominated the day for Megaworld [MEG 2.80 2.94%] [link] yesterday, after news started to circulate toward the end of the session that the Bureau of Internal Revenue (BIR) had issued a media advisory that it would be issuing a shutdown order against MEG at MEG’s headquarters in BGC on May 18th. The media advisory, which started to gain traction on Twitter around 1:30pm, said nothing about the nature of MEG’s alleged offense, which only added to the sense of chaos. Traders looking for updates were left in the dark as it took MEG almost until 3pm to issue a clarifying statement on the PSE’s disclosure server.

What happened to the stock? When the news initially broke, the stock tanked. Over the course of 10 minutes, the stock fell from P2.74 to a low of P2.53/share, an 8% drop, on just absolutely incredible volume. This was market-moving news. Within 30 minutes of that low, however, MEG’s price had already recovered to its pre-BIR price, and by the end of the trading day, the stock had actually risen into positive territory on the day to P2.80/share, up 3% on the day, but up 11% from that initial, intense low. 

How did MEG respond? It took a while, but MEG eventually pushed a statement to the exchange to say: “We got hold of the media advisory regarding the closure order. We are currently verifying and clarifying this with the Bureau of Internal Revenue.” That’s the entire statement. Two lines:

At the time this was all happening, it felt appropriate for the statement to be so short considering the absolute bonkers approach the BIR had used up to that point. Minutes later, MEG updated the media to say:  “We have already reached out to the concerned BIR Regional Office and the matter has been clarified and resolved.” MEG also said that it “continued to fully support the government's revenue programs.” 

BIR flip-flops: After forcing MEG to scramble, the BIR responded by saying that its planned shutdown order issuance was being “held in abeyance until further notice,” but did not provide any further clarification on the nature of the original issue that prompted the BIR’s actions, only recognizing that “Megaworld Corporation manifested their full cooperation with all the requirements of the Bureau of Internal Revenue.” Whaaaaat.

That venue tho: The best part of the original BIR advisory is that it was planning to conduct the media event announcing the shutdown order at 7:30am in Denny’s at Uptown Parade in BGC, which is a MEG-owned mall. Was that an intentional bit of gamesmanship from the BIR, or just a complete coincidence? This whole thing is just too nutty to know for sure.

MB BOTTOM-LINE

What the hell is going on here?

Like, it’s nice that the issue was so quickly de-escalated by MEG, but what should shareholders take away from this debacle?

An abeyance isn’t a cancellation, so the BIR’s language appears to be careful to maintain its right to go through with its shutdown order.

Was this a mixup or misunderstanding, or is there still a material issue large enough for the BIR to consider an attention-seeking shutdown notice to be the appropriate means of resolving the problem?

For the sake of argument, let’s assume that MEG had done some truly heinous tax-related things, like failing to pay billions in tax, or committing open and provable tax fraud: what the hell is the BIR doing?

It’s not like MEG is some sketchy POGO with a post office box for a mailing address and its corporate name, on printer paper,  in Comic Sans font, taped to the wall behind the receptionist's desk.

This is a massive public company, owned by Filipino citizens.

There are a huge number of administrative steps that the BIR seems to have skipped over to push this press conference conflict.

Taking it one step further, let’s assume that MEG has done nothing wrong, and that this was all just one big screw-up, the question is still the same: what the hell is the BIR doing?

We know practically nothing about this situation, but based purely on how quickly this seems to have been resolved, openly threatening a public company in this theatrical way, during market hours,  just can’t have been the right course of action.

I’m not taking sides here on the merits of whatever concerns (if any?) the BIR still has against MEG, I’m only commenting on the validity, sustainability, and fairness of the BIR’s approach.

This feels like barangay-level stuff here. Almost P400 million in MEG shares changed hands in less than an hour as a direct result of what the BIR did.

Those that sold thinking that the might of the government was being directed against the continuity of MEG’s business all lost money.

The panicked emails that I got from Barkadans wondering if their investments were safe should tell the BIR that these kinds of actions have real consequences. All we can do is stay tuned to find out more. What a mess.