Deal shakes up telco sector
PHILIPPINE LONG DISTANCE Telephone Co. (PLDT) yesterday moved to increase its dominance of the local telecommunications industry, announcing that it would be taking control of a Gokongwei-led competitor.PLDT will acquire a 51.55% stake in Digital Communications Philippines, Inc. (Digitel) -- the firm behind the low-price Sun Cellular brand -- from JG Summit Holdings, Inc. in a transaction valued at P69.2 billion. A mandatory offer to minority investors for the rest of the firm, if taken up fully, is expected to bring the deal’s total value to P74.1 billion. JG Summit, in return, will get a 12.8% stake in PLDT. The purchase involves 3.28 billion shares in Digitel along with zero-coupon convertible bonds and inter-company advances owed JG Summit, PLDT President Napoleon L. Nazareno said in a press conference. PLDT will swap one new share for every P2,500 worth of Digitel assets to be acquired. Minority shareholders were given the option to sell at a discounted P1.60 apiece or swap their stakes for PLDT’s shares at a premium of P2,500 per. The deal, which officials said would result in a combined cellular market share of some 67% -- no estimates were provided regarding other services -- is expected to be completed by end-June, the two companies said. The Sun Cellular and Smart cellular brands will be kept separate, while "Digitel fixed line operations can complement those of PLDT’s." Lance Y. Gokongwei, president and chief operating officer of JG Summit Holdings, said the share swap was a "very difficult decision" that would help maintain their participation in the industry. JG Summit Holdings will be given one board seat in PLDT as a result of the transaction, he said, with the post going to JG Summit Chairman James L. Go. Rival firm Globe Telecom, Inc., in a statement, said it was prepared to keep competing in the mature industry. "The Digitel and PLDT merger will not fundamentally change our strategy. We stand ready to compete, and to defend and grow our market share," Globe President and CEO Ernest L. Cu said. "This industry has always been intensely competitive, and we have been a strong challenger to a dominant incumbent all this time. We will continue to focus on delivering relevant products to our retail and corporate customers, providing differentiated customer service and enhancing our network to deliver the best experience possible to our subscribers," Mr. Cu added. Jose Mari Lacson, analyst at Campos, Lanuza & Co., Inc., said: "PLDT is not out to kill the competition, but growth of Globe will be limited." A price war that was accelerated by the entry of Digitel has eroded telco margins in the country’s saturated market, with penetration at around 90% against a population estimated to be nearing 100 million. PLDT Chairman Manuel V. Pangilinan said the deal would dilute stakes held by Hong Kong’s First Pacific Co. Ltd. and Japan’s NTT Communications. First Pacific’s stake will drop to 22% from 26% while NTT Communications’s stake will decrease to 18% from 21%. PLDT -- valued at $8.9 billion -- saw it shares close unchanged at P2,036 per yesterday ahead of the deal’s announcement. The firm will come under one-hour trading halt starting at 10:00 a.m today, the Philippine Stock Exchange said. JG Summit and Digitel -- valued at $269 million -- were last traded on Monday at P24.50 and P1.83 per share, respectively. Trading was suspended yesterday on the firms’ request. Shares of Globe Telecom -- valued at $2.1 billion -- closed at P746 apiece yesterday, 7% or P49 higher. Mediaquest Holdings, Inc., a unit of the Beneficial Trust Fund of PLDT, has a minority stake in BusinessWorld. -- reports from K. A. Martin and Reuters
Inflation to exceed 5% -- Tetangco
INFLATION is expected to top 5% in the coming months -- likely prompting further changes to monetary policy -- but the average rate for the year will still be within the 3-5% target, the Bangko Sentral ng Pilipinas (BSP) chief yesterday said.
"Inflation will peak in the second and third quarter and in some months will exceed the target," central bank Governor Amando M. Tetangco, Jr. said at the sidelines of a Management Association of the Philippines (MAP) meeting yesterday.
"In some months it will be more than 5% and in some it will be less," he added. Still, the outlook is that the rise in consumer prices will eventually taper off, resulting in an "average that is well within target". The BSP, said Mr. Tetangco, needs to "make sure that inflation expectations remain anchored and that any possible second effects would be dealt with at an early stage". "If we will take any action, it is going to be gradual". Analysts expect the central bank to keep raising policy rates. "I see inflation breaking the 5% target, rising up to 5.5%," University of Asia and the Pacific economist Cid L. Terosa said in a telephone interview. "I think it is inevitable for the central bank to raise rates. The market can absorb further rate hikes as they have other options, but end consumers have little left to do when inflation continues to rise," he added. The BSP, which has warned that its 4.4% inflation forecast for 2011 was at risk, last week set a 25 basis point rate hike, its first adjustment since July 2009. "Our view is that the central bank will continue to raise rates, as it is only in the beginning of a tightening cycle," Standard Chartered economist Simon Kwok-Cheung Wong said in an e-mail. The central bank’s policymaking Monetary Board is scheduled to hold its next review on May 9. Mr. Tetangco, in his speech at the MAP meeting, said the country was still set for modest economic growth despite disruptions such as civil unrest in the Arab world and the disaster in Japan. "Stronger private consumption, overall improvement in [the] business outlook, healthy banking system and infrastructure growth because of PPPs (public-private partnerships) will offset the risks posed by escalating commodity prices and [a] possible decrease in remittances due to crises in the MENA (Middle East and North Africa) and Japan," he said. "Effects of the recent events will likely to be just in the first half. In the long-term the effect will be positive." Economic managers have ordered a review of existing macroeconomic targets, with some Cabinet officials and Mr. Tetangco saying that the 2011 gross domestic product goal of 7-8% will likely be missed. -- with a report from Reuters
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