Aboitiz Equity Ventures has bought 61% of William, Gothung & Aboitiz (WGA) - the largest shipping company in the Philippines - from the Chiongbian Group and Gothong Group. Aboitiz already owns 31% of the company, which is involved in ferry services around the archipelago for passengers and cargo.
The move will see Aboitiz pay Ps3.98 per share for a total consideration of Ps3.65 billion ($72 million). The group will pay 50% in cash now and 50% in an interest bearing promissory note, which carries a 12% coupon for five years, with a one-year grace period.
With 92% of the company now in Aboitiz hands, the remaining 8% is listed. It is probable that the acquisition will have to trigger a general offer for this remaining 8% that is publicly held. However Aboitiz has not formally launched such an offer. According to bankers in Manila, the company could be looking for ways to structure the transaction in such a way that it can avoid such an offer.
The move comes after a few months of controversy within the company, which was founded in 1996 by the merger William Lines, Carlos Gothong Lines and Aboitiz Shipping Corporation. The merged had recently come under some strain when members of the Chiongbian and Gothong Groups tried to oust the company's president, Enrique Aboitiz from the board during a July 12 stockholders meeting.
This failed, but the acquisition looks like being a solution to the problem. "This is a win-win situation for all shareholders," says Victor Chiongbian, CEO of the Chiongbian Group. "We believe we have divested at a very reasonable price and will be able to re-channel our resources in the fast growing logistics business."
Aboitiz is one of the leading conglomerates in the country with interests from power to property to banking and shipping. This move strengthens its hand in a core industry for the group. "This transactionàconsolidates our ownership and management position in a company that is a dominant leader in the shipping industry and one that will provide very healthy returns and cash flow for the group," says Erramon Aboitiz, COO of Aboitiz Equity Ventures.
Indeed last year the company posted profits of Ps649 million, up 11% from the previous year's figures. That means Aboitiz is paying roughly 9.2 times trailing earnings for its stake. Prior to the announcement, the shares of the company were trading at around Ps3.40, making the Ps3.98 purchase price a 17% premium.
The deal was advised by ING Bank, as usual at the heart of most deals that happen in the country. Last month it advised Union Cement on its takeover of Alsons Cement while on this transaction ING advised the seller. ING was mandated by the Chiongbian and Gothong Groups in August last year and had been talking to other potential investors about the deal. According to Manuel Salak III, CEO of ING in the Philippines, there were other formal offers for the 61% stake in various forms of equity and equity linked structures. However the Aboitiz offer was the most obvious and ultimately the best for the company.
These recent deals show the early signs of a wave of domestic consolidation that is happening in the Philippines. According to Salak, many conglomerates are seeking to pare down the number of businesses they are involved in and focus on core competencies. Allied to a drive for efficiency and synergies among buying companies, this is leading to a healthy wave of domestic consolidation.