By Tony Lopez
Meralco shares hit a high of P302 per share on Wednesday, July 29. The speculation is that Ramon S. Ang, the president of San Miguel Corp. (SMC), has challenged Manuel V. Pangilinan, the chair of the Philippine Long Distance Telephone Co. (PLDT), to buy him out so the latter can buy control of the country’s largest utility distribution company.
If Pangilinan bites the bait, it will drain his financial resources. As of July 29, Meralco was worth P326 billion. Ang says his group controls 43 percent of Meralco, which could be valued at P140 billion, far more than PLDT’s equity of P111 billion.
SMC vs. PLDT. Ang vs. MVP. This is clearly a tussle of titans. Meralco seems like the first of what could be several battles between the two groups in a large-scale war over control of the country’s infrastructure networks—in utilities like power, telco and water, in roads and tollways like the North and South Luzon expressways and their extension lines, and in the exploitation of the country’s natural resources like mining.
San Miguel is just now gaining traction as it undertakes its biggest diversification and expansion in its 119-year history. It will become the largest conglomerate in the Philippines and the biggest infrastructure company. It has bought chunks of Meralco, Petron, Liberty Telecoms, and the consortium that will build and run the Tarlac-La Union tollway (SMC wants to hike its stake to 51 percent). It is looking at other acquisitions.
Infrastructure—power, water, telco, highways and mining—is the best business of the 21st century. It is a necessity for a country that is now middle class and has a huge appetite for big-ticket items on its way to full industrialization and modernization.
“Beyond seeking profit,” explains SMC Chairman and Chief Executive Officer Eduardo Cojuangco Jr. “we want to be in industries that serve as the backbone of our country’s development, and impact the lives of Filipinos in a meaningful way. We are committed to this vision because we have complete confidence in our country’s potential.” “We are well-placed to literally fuel the progress of the nation,” he added.
Payback can be quick and substantial. SMC bought the 27 percent chunk of the GSIS in Meralco for P90 per share, three years to pay. The cost to SMC: P40 billion. Together with allies, SMC claims to control up to 43 percent of Meralco. At P302 per share, the 43 percent is valued at P144.65 billion.
Petron, meanwhile, has risen 52 percent in market value giving SMC a paper gain of P9 billion in just eight months.
SMC’s 27 percent in Meralco is worth P90.8 billion, giving the beer and food conglomerate a clean profit of P50.8 billion, assuming Meralco remains steady at P300 a share. Share price, however, has nosedived to more reasonable levels. Assuming SMC makes a capital gain of P40 billion, that’s still more than double its P19.3-billion net income in the whole of 2008.
The P40 billion can finance SMC’s other acquisitions and diversification moves. Like the $1.1-billion Laiban dam water project, which Ang believes can supply up to 5,000 million liters a day, half of the water needs of Metro Manila in ten years. He says San Miguel will charge only P18 per cubic meter, below what the Ayala-owned Manila Water and the MVP-Isidro Consunji-owned Maynilad Water are charging now.
There is money in water. Manila Water got a rate increase of 50 percent per year for five years from the government enabling it to more than double the rate MWSS was charging when it awarded the concession to Ayala in 1997.
At that time, the West and East water concessions were estimated to need $7 billion to develop. Ayala invested only P27.3 billion in the last four years (far below the P175 billion or half of the peso equivalent of $7 billion) and brought up net worth from P5.1 billion in 2004 to P14.5 billion in 2008. Market cap is P31.57 billion.
Laiban dam also has the potential for a 1,000-megawatt power plant where SMC can make even more money. Power plants are usually guaranteed profits.
The P180 (P200 before President Gloria Arroyo ordered a reduction) that the Manila North Tollways charges now for the Balintawak to Dau leg used to be only P25. Toll at the Manila South Expressway also rose ten-fold with the private concessionaire. That, says Ang, is highway robbery.
For his part, Pangilinan’s infra vehicle is the Metro Pacific Investment Corp. (MPIC). The PLDT-MPIC group has invested in Maynilad Water Services, in joint venture with DMCI; mining with a 20 percent stake in Philex; and the Manila North Road tollways.
Already, PLDT-Smart is the country’s largest wireless phone provider. Ang is challenging that leadership with a phone service, which he says could be 80 percent cheaper. Now, that’s public service.
Meralco shares hit a high of P302 per share on Wednesday, July 29. The speculation is that Ramon S. Ang, the president of San Miguel Corp. (SMC), has challenged Manuel V. Pangilinan, the chair of the Philippine Long Distance Telephone Co. (PLDT), to buy him out so the latter can buy control of the country’s largest utility distribution company.
If Pangilinan bites the bait, it will drain his financial resources. As of July 29, Meralco was worth P326 billion. Ang says his group controls 43 percent of Meralco, which could be valued at P140 billion, far more than PLDT’s equity of P111 billion.
SMC vs. PLDT. Ang vs. MVP. This is clearly a tussle of titans. Meralco seems like the first of what could be several battles between the two groups in a large-scale war over control of the country’s infrastructure networks—in utilities like power, telco and water, in roads and tollways like the North and South Luzon expressways and their extension lines, and in the exploitation of the country’s natural resources like mining.
San Miguel is just now gaining traction as it undertakes its biggest diversification and expansion in its 119-year history. It will become the largest conglomerate in the Philippines and the biggest infrastructure company. It has bought chunks of Meralco, Petron, Liberty Telecoms, and the consortium that will build and run the Tarlac-La Union tollway (SMC wants to hike its stake to 51 percent). It is looking at other acquisitions.
Infrastructure—power, water, telco, highways and mining—is the best business of the 21st century. It is a necessity for a country that is now middle class and has a huge appetite for big-ticket items on its way to full industrialization and modernization.
“Beyond seeking profit,” explains SMC Chairman and Chief Executive Officer Eduardo Cojuangco Jr. “we want to be in industries that serve as the backbone of our country’s development, and impact the lives of Filipinos in a meaningful way. We are committed to this vision because we have complete confidence in our country’s potential.” “We are well-placed to literally fuel the progress of the nation,” he added.
Payback can be quick and substantial. SMC bought the 27 percent chunk of the GSIS in Meralco for P90 per share, three years to pay. The cost to SMC: P40 billion. Together with allies, SMC claims to control up to 43 percent of Meralco. At P302 per share, the 43 percent is valued at P144.65 billion.
Petron, meanwhile, has risen 52 percent in market value giving SMC a paper gain of P9 billion in just eight months.
SMC’s 27 percent in Meralco is worth P90.8 billion, giving the beer and food conglomerate a clean profit of P50.8 billion, assuming Meralco remains steady at P300 a share. Share price, however, has nosedived to more reasonable levels. Assuming SMC makes a capital gain of P40 billion, that’s still more than double its P19.3-billion net income in the whole of 2008.
The P40 billion can finance SMC’s other acquisitions and diversification moves. Like the $1.1-billion Laiban dam water project, which Ang believes can supply up to 5,000 million liters a day, half of the water needs of Metro Manila in ten years. He says San Miguel will charge only P18 per cubic meter, below what the Ayala-owned Manila Water and the MVP-Isidro Consunji-owned Maynilad Water are charging now.
There is money in water. Manila Water got a rate increase of 50 percent per year for five years from the government enabling it to more than double the rate MWSS was charging when it awarded the concession to Ayala in 1997.
At that time, the West and East water concessions were estimated to need $7 billion to develop. Ayala invested only P27.3 billion in the last four years (far below the P175 billion or half of the peso equivalent of $7 billion) and brought up net worth from P5.1 billion in 2004 to P14.5 billion in 2008. Market cap is P31.57 billion.
Laiban dam also has the potential for a 1,000-megawatt power plant where SMC can make even more money. Power plants are usually guaranteed profits.
The P180 (P200 before President Gloria Arroyo ordered a reduction) that the Manila North Tollways charges now for the Balintawak to Dau leg used to be only P25. Toll at the Manila South Expressway also rose ten-fold with the private concessionaire. That, says Ang, is highway robbery.
For his part, Pangilinan’s infra vehicle is the Metro Pacific Investment Corp. (MPIC). The PLDT-MPIC group has invested in Maynilad Water Services, in joint venture with DMCI; mining with a 20 percent stake in Philex; and the Manila North Road tollways.
Already, PLDT-Smart is the country’s largest wireless phone provider. Ang is challenging that leadership with a phone service, which he says could be 80 percent cheaper. Now, that’s public service.
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