Reader questions on the MPI tender offer ANSWERED!
I have received a bunch of questions by email and private message about the Metro Pacific [MPI 5.00 ?0.2%; 173% avgVol] tender offer, and in the interest of getting as much info out into the open as possible, as quickly as possible, I also asked readers to send in their questions on Thursday and Friday so that I might try to answer everything in one big megathread. Here is that megathread! Before we go ahead and start getting into the details, I think we need to remember a few things: first, I’m just a guy on the internet and I have no idea about your financial situation, your risk tolerance, or anything else about your life, so please do not take anything I say to be a recommendation that you (specifically you) do something; second, this is my first time participating in a tender offer, so I’m going through the steps in real-time right alongside you, and I might make some mistakes; and last, the specific flow of how you might do something in a tender offer may differ between brokers, but the essential options are the same. When in doubt, contact your broker! Ok, now that we have that out of the way, let’s get into it.
> What are my options here? Every MPI stockholder has three options: sell on the open market for the prevailing market price, sell to the tender offer, or hold.
> What happens if I sell on the market? You’ll sell your shares and get the money right away, just like any stock trade. This isn’t like the Holcim PH [HLCM] situation, since MPI did not go below the minimum public float and get suspended before initiating the tender offer, so we’re still able to buy and sell MPI shares on the open market just like normal. If you sell all your shares, you aren’t eligible to participate in the tender offer, so your Choose Your Own Adventure ends here. THE END.
> What happens if I tender my shares? You’ll pledge your shares to the tender offer, and if the tender offer completes, you will receive the money on September 19. If you tender your shares early in the tender offer period and change your mind, you can pull your shares back out of the tender offer so long as you do so during the offer period (which ends on September 7).
> What happens if I do nothing? This is where it gets weird, because of what the brokers are saying. Let me explain. So normally, if you decide to not participate in a tender offer, you still hold your shares regardless of what happens. So if the tender offer is successful and MPI goes forward with delisting, you’ll still own shares in MPI, but because MPI is delisted from the PSE, you’ll need to conduct a private sale of the shares off the PSE’s board to sell if you want to. There may be tax implications for that, and you’re probably going to have to sell the shares for a lower price than you’d ordinarily get simply because of the transaction costs and the lack of liquidity. But here’s where it gets weird: for some reason, if you don’t tell COL Financial that you don’t want to tender, they’re planning to assume that you DO want to tender, and they’ll sell your shares into the tender offer automatically, on your behalf. Why? I don’t know! How? I’m not sure! I don’t know if this is just how COL Financial and some other brokers are handling it, but this is the main thing to consider when it comes to your options: it’s not safe to just “do nothing”. If you want to hold your shares, you should probably contact your broker to confirm that they understand what you want to do.
> Do I need to pay capital gains tax? Your tender offer will be treated like a normal stock trade. The weird tax problems that haunt the HLCM tender offer, where shareholders are required to jump through a long list of administrative hoops and pay tax to the BIR, are not in play here because this MPI tender offer will not settle while the MPI is suspended. The MPI tender offer will result in MPI being suspended, but in the HLCM situation, the stock was suspended first and that makes (apparently) all the difference in the world.
> Is there a risk that the tender offer fails? Yes! For MPI to delist, the MPI consortium needs to hold 95% of MPI’s outstanding shares, and if they’re not able to get that number of shares through the tender offer, they can decline to complete. In that case, any shares pledged into the tender offer would just return to their owners, but the real action will be in the market price of the stock, which would probably tank. While I don’t know how likely something like this is to happen, the current market price of MPI implies that the “market” believes that there’s only a 10% chance that the tender offer fails. The market has no conviction, though, so that belief can change in an instant for better or for worse, so use that info only as a signal and recognize that the signal can (and probably will) change.
> What’s the big unknown? While a sufficient number of MPI’s outstanding shares voted to delist, the two largest public shareholders (SSS and GSIS) hold all the cards. If they participate in the tender offer, the tender offer is almost certain to proceed as planned. If, for whatever reason, they decide to be difficult or not participate, that could throw the whole thing into jeopardy.
> What happens if MPI actually does delist? If the tender offer is successful, then it will probably progress a lot like how 2GO Logistics went private. A successful tender offer will drive the public ownership level below the minimum, which will require suspension of trading. Then, the company will apply to delist for its target date, and await regulatory approvals, which, when received, will allow the suspended stock to leave the PSE at the agreed-upon date. If you remember back to 2GO, it was a very quiet process. The delisting was quiet because the stock was already suspended, and the suspension was quiet because shareholders had already overwhelmingly exited their positions through the tender offer. The only question is, what happens to MPI’s spot in the PSEi? Rumor says that Bloomberry [BLOOM 11.60 ?1.4%; 54% avgVol] is the best positioned to be added in MPI’s place. The run-up in BLOOM’s stock matches (loosely) the shape of the demand for MPI’s stock, with a significant dip around the same time that MPI’s dipped when the first tender offer price was rejected. There’s no guarantee it will be BLOOM, though!
MB BOTTOM-LINE
I made a flowchart of your options from a high level, which you can see here. The only thing missing is the option to sell your shares at the current market price. Predictably, the HLCM fiasco has spooked investors, but the issue crushing minority shareholders in the HLCM situation is not present here in the case of MPI, so those concerns are not relevant to this transaction. Weirdly, the new issue here is that brokers are treating this tender offer as though it is an opt-out transaction (action required to avoid participation, with participation as a default), not opt-in (action required to participate, with non-participation as a default). If you do absolutely nothing and ignore all the emails, popups, and notification bars on your broker page, then the brokers are saying that they will automatically tender your shares on your behalf at the close of the tender offer period. That feels outrageous to me, but then again, this is my first tender offer rodeo, so maybe this kind of automatic sale is just how the process works?
I hope this outline helps. It’s not definitive, and it shouldn’t be taken as law, but it can be used to wrap your head around the choices that you have and perhaps some of the consequences of those choices. As for me, I’ve been an MPI shareholder for about a year. I bought at ?3.77/share sometime back in the middle of last year. In my heart, I felt like the ?5.00/share market price that we saw on Friday was going to be good enough for me, and I thought about selling at that price and just walking away with the profit, but then I decided (since the position was less than 2% of my portfolio) to just go through the tender process, to gain the knowledge about what happens and how it feels. In making that decision, ordinarily, I’d have waited until toward the end of the offer period to tender my shares, just in case something happened with the market price that would make me change my mind, but again for the purpose of learning and being able to pass those learnings on to the readers, I’ve just gone ahead and tendered my shares. Now I just sit patiently and wait for this thing to work (and payout on September 19), or not work in which case at least I’ll probably have something spicy to write about to make up for the market value loss on my shares.
Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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