Corporate takeovers in Philippines

In 1999, Manuel V. Pangilinan (MVP) orchestrated the buyout of the Philippines’ biggest telecom company. More than a decade later, the main pilot of Indonesian-controlled First Pacfic Co. Ltd. has created a telecom and industrial empire in the Philippines through mergers and acquisitions (M&A).

His latest blockbuster deal involved corporate gem Philippine Long Distance Telephone Co. (PLDT) gobbling up the Gokongwei group’s Digital Telecommunications Philippines Inc. (Digitel),

reverting the industry to a duopoly that existed before the pioneering unlimited offering of Digitel’s Sun Cellular began eating into second-ranked Globe Telecom Inc.’s market share.

But it’s still no walk in the park for Globe, as PLDT has cemented its leadership, putting pressure on the second-ranked telco to come up with innovative products and attract more subscribers.

With PLDT cornering as much as 65 percent of the market in the wireless mobile segment, Globe, a joint venture between local conglomerate Ayala Corp. and Singapore Telecommunications Ltd., is the next biggest competitor with about 30 percent.

“We know the Ayala group, how they operate. They are not that aggressive into chasing market share. They’re focused on profitability as far as the margins will be preserved,” April Lee-Tan, CitisecOnline head of research said.

But the P74.1-billion PLDT-Digitel deal may prompt the Ayalas to reassess their conservative market strategy and perhaps contend with a huge and hostile rival like PLDT in a very competitive market.

“Globe might have to acquire small players as well. They may sell their operations and they may suddenly turn aggressive from their conservative stance,” Jun Calaycay of Accord Capital Securities Inc. said.

And there’s the “silent player,” Vega Telecom, which is backed by San Miguel Corp. (SMC) and headed by Ramon Ang.

Vega Telecom earlier acquired Eastern Telecommunication Philippines Inc. and Belle Telecom. Its partnership with Qatar Telecom launched the wiTribe broadband brand a few years ago.

Now it’s Ang’s turn to again test Pangilinan’s mettle in the telecom sector, as the two corporate heavyweights in the past had contended for acquisitions in areas ranging from mining to power and infrastructure.

When Pangilinan went after Manila Electric Co. (Meralco) a few years ago, the focal point of the acquisition was to create synergies between the infrastructure network of the Philippines’ biggest electricity distributor and the broadband capabilities of PLDT, said Calaycay.

“He was able to see the possible synergy between the two businesses. He saw the bigger picture and not just the potential of that company,” agreed Astro del Castillo of First Grade Holdings.

Awash with cash and with access to financing thanks to the low-interest rate environment, the battle between the SMC and PLDT groups will boil down to who will be willing to pay more and who will offer better services, del Castillo said.

“They’re giving a lot of excitement to market. Where MVP goes, SMC follows. And where SMC goes, MVP seems to be getting ahead,” Calaycay said.

“It’s good they’re chasing after small companies and small companies see it as an opportunity to put themselves together and makes themselves an attractive target. It will have to come to a certain level that we may become an SMC-MVP economy,” he added.

SMC has its core business of food, beverage and packaging, but has diversified to high-growth areas such as power generation, oil retailing, mining and infrastructure.

Besides telecoms, Pangilinan, through First Pacific unit Metro Pacific Investments Corp., has a water utility, toll roads, and hospitals. He also has interests in mining and media.

Calaycay said the Pangilinan group and the San Miguel group have been cornering a large chunk of the market and regulators should take a second look on this developing event to protect the consumers.