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Beer in my petrol

(Article published in the Jan 14, 2009 issue of Manila Standard Today)

For all I know, San Miguel Corporation’s looming acquisition of control of Petron Corporation is the best thing that could ever happen to us who try not to drive too soon after having drank.  At the very least, it would be a very interesting bar room bet whether the man who had the capability of sending a private plane to rescue the loving husband of an equally loving wife from gastro-intestinal discomfort that, inconveniently or conveniently, manifested itself while en route to the home of the brave and land of the free, also has the power of mixing beer with gasoline. 

But somehow, there is a taste of the stale in my palate as I read last week the way San Miguel appears bent on doing it.  The minority stockholders, for many of whom “beer” could only mean “San Miguel Pale Pilsen”, seem to have been effectively, without ceremony, ignored, if not completely shoved out of the eksena.  Among us who bought our libations on credit from Akong’s sari sari store at the corner, that ain’t no way to treat people with whom you have had some  good times together, i.e. pinagsamahan. 

The first corporate disclosure of San Mig’s moving in in a big way into Petron was made on the first working day of the year, 05 January.  The Corporate Information Officer wrote to the Philippine Stock Exchange,  attention the Head of the Disclosure Department, saying that an Option Agreement dated 24 December 2008, has been entered into between San Mig and a certain Sea Refinery Holdings B.V. There was no indication of what “B.V.” meant.  What we are familiar with is “Inc.” or “Corp.”


“Pursuant” to the Option Agreement, San Mig was granted an option to acquire and purchase from SEA BV “up to 100%” of the latter’s “interests in SEA Refinery Corporation.”  SRC, we are patronizingly told, is a wholly-owned subsidiary of SEA BV “which, in turn, currently owns a total of 51.1% of the outstanding shares of Petron Corporation.” 

The option may be exercised, says the disclosure, within 2 years from 24 December 2008.  Finally, we are told, SMC and SEA BV have agreed that San Mig “shall have representation in the board and management of Petron Corporation.”  Full stop.

That’s all, folks.  The very carefully crafted disclosure does not tell us how much the option costs; we are not told what precise “interest” SMC may acquire, and for that matter, what amount is intended to be acquired but only the maximum (that’s the import of “up to”); and how, by reason of the solely of what was disclosed of the option, if at all, SMC can have representation in both board and management.  That cryptic statement is meant to be a “disclosure”?

Thank goodness, PSE’s head of a disclosure is both intelligent and courageous.  He forthwith asked for “additional information” and SMC was constrained to show a bit more skin, underline “a bit”. 

The first of the six-point reply of San Mig simply said what was said before: “The Option Agreement grants SMC the option to acquire and purchase from SEA BV up to 100% of its interest in SRC.  The option may be exercised by SMC within a period of two years from December 24, 2008.” 

The second tells how the option will be paid: “The Company (why the change? Why not, as before, “SMC”?) will use internally generated funds and may avail of external borrowings, if necessary,…”  How additional can you get? Did anybody expect the payment to be “in kind,” like tons of beer, or shares of stock, similar options?  And after “internally generated” (Inclusive of the funds of employees’ in their retirement trust funds?), can there be any other legal fund source than “borrowing”? 

“B.V.”, we are, by paragraph 3 condescendingly permitted to conclude, must mean “British Virgin Islands”, saying that SEA BV “is a company incorporated in the British Virgin Islands”.  Paragraph 3 states further than SEA BV is “the parent company of SRC” (Isn’t that the same as “SRC is a wholly-owned subsidiary of SEA BV,” disclosed earlier?) and “There is no material relationship between SMC and its directors, officers and affiliates and SEA BV.  Hurray! For the first time, something new.  Self-serving and practically useless to investors in Petron but new nevertheless.

The fourth paragraph says, perhaps in order to imply that surely nothing could be amiss since a foreign entity is in the picture, that “SMC engaged UBS as its financial adviser for the transaction” and that “the valuation analysis used for the transaction are: Discounted Class Flow Analysis, Comparable Company Analysis and Comparable Transaction Analysis.”  Some comfort.  If “UBS” means the “Union Bank of Switzerland AG,” it would have been good for many to know UBS was subject of a recent tax evasion probe by the Senate of the US.

We are assured, under Paragraph 5, that “there will be no changes in the Board of Directors and Officers of SRC.”  At least security of tenure of the board and officers of SRC is assured.  But, does anybody know who the members of the board and officers of SRC, a non-listed corporation, are?

Finally, Paragraph 6 reiterates that “SRC is a wholly owned subsidiary of SEA BV” which, as pointed out above, was not only already disclosed in the 05 January 2008 letter but also restated in Paragraph 3 of the 07 letter.  The “lady doth protest too much,” doesn’t she. But even then, still we get no indication as to the price paid by SMC for the option.

The investigative reporters of the broadsheets, fortunately, came to our rescue.  On 09 February, it was reported that the amount committed to be paid by SMC for the controlling stake in Petron is $10 million.  And, allegedly, based on a text message by a senior officer of SMC, the $10 million covers only “the cost of option agreement” to maintain exclusive talks with Ashmore for two years and that it did not include the actual cost of acquisition.

Promptly, PSE Head of Disclosure asks for “clarification of the news article…”  In response, the SMC Corporate Information Officer writes, “We confirm that SMC has committed to pay the Ashmore Group approximately $10 million as consideration under the Option Agreement.”

Again, what we get is a skillfully crafted disclosure.  All SMC says is that the $10 million is “consideration under the Option Agreement”; it does not confirm or deny that the amount is only for the right to continue negotiating for the price of acquisition and is not part of it.  It also does not reveal whether the $10 million also paid for something else.  A very studied piece of ambiguity.

For Pete’s sake, is this the way a major player in the Philippine capital market views its obligation to make a public disclosure of a transaction, significant not only for its own constituencies but also for of the publics of Petron?  From where I sit, it is an in-your-face mockery of the spirit of the disclosure requirement under the law and the rules of the PSE; a frontal and derisive thumbing of SMC’s nose at the SEC; and outright dumping in the trash can all principles of good governance. 

SMC’s “disclosure” simply confirms, to my skeptical mind, the coffee-shop speculation that SMC’s overriding concern was, from the very beginning, to skirt the tender offer rules.  Some example it is raising of how we are committed we are in developing our capital market.  Or worse, a indication where our business ethics and morals have gone.