Hostile takeover

What the government wants, based on recent developments, is a hostile takeover of Meralco. This attempt has two major flaws that can discourage local and foreign investors from risking capital in the Philippines.

To begin with, the hostile takeover which Meralco is daring the Arroyo government to do is a complete reversal of the state’s privatization policy. The government has been selling its assets to lay its hands on more money. In fact last year the government minimized its budget gap because of the sale of its own assets including the generating plants of Meralco and the transmission system.

Lately, it stared selling financial assets represented by the size of its holdings in San Miguel Corp. Why should the GSIS now be on the warpath against the Lopezes to acquire Meralco?

Its evil intention is disguised as a legitimate desire to force Meralco to fully disclose its financial and other transactions, which as GSIS claims may help Meralco reduce its rates.

The GSIS has a legitimate desire to help the consumers and protect the 40 percent investment of the state of which it owns the largest portion of 20 percent.

The Lopezes are also presumed to have 40 percent but they have always remained in management control from the time they acquired the Luzon monopoly from the Americans.

The intention of government is to take over management control claiming with some validity that the Lopezes are making money out of Meralco against the interest of the public and more importantly the consumers.

Whether control will change will be known by the results of the stockholders meeting late this month. The problem is the state may not take over a public company unless the security of the state is involved.

In which case, it is entirely possible that some powerful people may have talked foreign or local investors into taking over the company. The buzz in business is that the powerful group supported by President Arroyo is in serious negotiations with a huge fund called Ashmore based in London.

Ashmore is said to be finalizing the acquisition of 40 percent of the shares of Petron owned by Saudi Aramco for $550 million. The forcible takeover of Meralco, if it succeeds, sits well with acquisition of Saudi Aramco shares in Petron by Ashmore. The evil motive of powerful people, using the name of President Arroyo, is coming to the fore.

But unless the proposed takeover of management or of the company is done with a gun pointed at the heads of the Lopezes, President Arroyo or the powerful people she protects in the name of public welfare, will have a hell of time controlling the company getting the majority of the shares although the state already has acquired 40 percent.

The Lopezes have skillfully devised a corporate web that has practically made sure they stay in control. When Meralco was granted 50 separate franchises for 23 cities and 88 municipalities in Metro Manila and surrounding provinces, it made sure that it maintained comfortable control.

For example, the share of First Philippine Holdings in Meralco increased from 17.7 percent to 33.4 percent after the holding company became the largest stockholder – with veto power – by buying in January this year the 40 percent share of Union Fenosa International in the First Philippine Union Fenosa for a rumored $250 million.

FPUP has a 22.8 percent stake in Meralco. Therefore, Meralco FPHC acquired shares in Meralco to a similar extent. This is about 91 percent stake in Meralco of First Philippine Holdings.

First Gen Corp., listed in the stock exchange, is owned 66.2 percent by First Philippine Holdings. The holding company, wholly owned First Gas Power Corp., has capacity of 1,000 MW. Unified Holdings, also of the Lopezes owns all of FGP Corp. which is the project company of the 500 MW of the San Lorenzo natural gas fired plant. Together with the Sta. Rita power plant, the two companies have a 25-year power purchase agreement with affiliate company, Meralco which buys all the electricity generated by San Lorenzo and Sta. Rita although the plants are operated by Siemens Power Operations, Inc.

There is a company called First Gen Renewables, Inc. formerly known as Philippine Energy Corp, is wholly owned by First Gen. FGRI is to be converted into a mere supplier of products and systems to service providers in the countryside. First Gen has large stakes in other companies organized by the Lopez group. For example, it has 60 percent of BG International Holdings.

It also owns 40 percent of First Private Power Corp. which in turn owns 93.25 percent of Bauang Private Power, the project company of the 225MW bunker fired power plant was formed under a "build, operate and transfer" agreement with Napocor. The contract expires in 2010.

The inter-relationship of one company to the other, all organized and controlled by companies organized by the Lopez group, is dizzying and complicated.

When one talks of who controls majority of the shares of Meralco, it is clear that the companies of the Lopezes are closer to it than anybody else. First Philippine Holdings had an initial 17.3 percent in Meralco. This went to 42.3 percent as a result of FPHC purchase of 40 percent share of Union Fenosa International which has 22.8 per cent stake in Meralco.