AN OPEN LETTER TO MANNY PANGILINAN
By: Eyal Shram, a US-based investor
Dear Mr. Pangilinan:
I've been following the PLDT/First Pacific developments since rumors started circulating back in April that First Pacific was interested in selling all their Philippine-based assets. At first I didn't believe the rumors since this would have indicated that First Pacific was already throwing in the towel on their Philippine bets. It would have been equivalent to buying high and selling low which was hardly First Pacific's investment track record. Now that rumors have been validated by official statements from both sides, I can't help but be utterly amazed at what has transpired the last couple of months since First Pacific initially went public with their intentions. The unconventional ways in which this whole event has unfolded and continues to evolve is unprecedented, even at times comical. I struggle to imagine how this can benefit and improve the negative sentiment and perception already prevailing among international investors on how business is done in the Philippines.
I'm both a PLDT and First Pacific shareholder so I thought I'd air my perspective, in the event that somebody shared my thoughts and views. I'm a Philippine-born Israeli living in the US so I'd like to think that my views are somewhat objective, having lived in the Philippines for a number of years and having been exposed to how business is conducted on both sides of the Pacific. I'm not attached to either group and the main reason I purchased my shares in both PLDT and First Pacific when they were hitting their all time lows late last year to early this year was the underlying value I saw and still see in both companies. I work as a private and public equity professional so I'd like to think I'm somewhat qualified in evaluating these matters.
When I first heard of the rumor about this transaction, the first thing that came to mind was that this may not be a good deal for PLDT's minority shareholders, given my own impression of Mr Gokongwei's past investment style. His flagship holding company, JG Summit, trades at a fraction of its book, net asset and intrinsic values. Compare this to Ayala Corporation which trades at a slight premium to its book value even though it trades at a slight discount to its net asset value (NAV), and one would get an idea of how the market perceives John Gokongwei as a businessman.
But since I'm a PLDT shareholder as well, I was hopeful that whatever offer Mr. Gokongwei was willing to make would lift the share price of PLDT at the time. So the second thing that came to mind was that this offer price, which is a big premium to the current trading price, would benefit me and my investors in the event PLDT stock price starts closing the gap between the prevailing share price and the offer price. Alas, I was dead wrong. While PLDT experienced a slight appreciation the day the deal was announced, the share price quickly went south as the market began to imagine the prospects of a Gokongwei regime at PLDT. Not to mention the huge overhang created by your PLDT management's, refusal to cooperate on the deal.
While I'm not a big fan of the Gokongwei group, I'm also not thrilled with your lame strategy of abusing the legal system to achieve your personal business goals. This is exactly what you've done as you continue to cite PLDT's By-Laws as a stumbling block to the deal. I'm only assuming that your goal is to tie this transaction long enough in the legal system with the hope that the Gokongwei group would get discouraged from pursuing this transaction any further. One can also only assume that you're merely interested in preserving the status quo so you can preserve your PLDT position and probably attempt to save face on your ill-timed bets on the Philippines. Decent strategy, but a very cowardly one considering you've already breached the same By-Law provision you're constantly citing when you led First Pacific's acquisition of a control position in PLDT back in 1998. As you can recall, First Pacific should have been considered a 'competitor' at the time since they had a controlling stake in Smart Communications. A classic example of applying double standards to serve one's needs.
Your attempt to leverage the legal system is frustrating and counterproductive. The time has come for you, Mr. Pangilinan, to either put up or shut up. What you're doing is not only detrimental for PLDT shareholders but also negatively impacts Philippine business. A 'rouge' employee's refusal to heed the wishes of his or her controlling shareholders could send negative signals to international investors looking to invest in the Philippines. A shareholder like First Pacific should be able to do whatever they please with their equity investments, especially a controlling position in a public company. They should be able to sell their position to whomever they want to sell it to. And if you would like to continue your reign in PLDT and protect your turf, you should focus more of your efforts in raising the capital required to purchase this stake rather than freely spending vital PLDT resources in delaying this transaction further by putting up legal hurdles.
You've made it clear time and again that you're a long-term investor in PLDT which I'm sure all shareholders, including myself, appreciate. Your phenomenal track record as a private equity investor and as head of First Pacific speaks volumes of your capabilities and intelligence. I've always been fond of First Pacific since I viewed it as a publicly traded buyout shop. There's no doubt that you have created a tremendous amount of wealth for your First Pacific shareholders since you co-founded First Pacific in 1980. However, your Philippine sector bet did not work and has not evolved as planned, thru no fault of your own, of course. You just got caught in the midst of a shifting business cycle which was exasperated by your ill-timed entry into the Philippines. Time can only tell how these investments will turn out if you are given more time to manage them. I'm in the mindset that these are good bets and all the value lost will be recouped in due time. However, it seems that your employers at First Pacific no longer share your long-term vision and would like to cut their losses at this point and re-deploy the remaining resources elsewhere. As investors, large ones at that, they should be allowed to do that.
If you really believe the true intrinsic value of PLDT, you should just focus your defense on raising the necessary resources to lead a management buyout. I can only guess that you are having a difficult time raising the proper financial support given the current environment in the telecom sector throughout the world. Otherwise, I'm sure you would have already unveiled your competing offer if you had one. Once again, I can only assume that your legal strategy is merely a ploy for you to buy more time to assemble your competing offer. Mr. Pangilinan, it's been more than two months since First Pacific went public with their intentions. From that point, you and your team have done nothing but delay this through legal means. You should have a pretty good sense by now if your fund-raising efforts are going to bear fruits given what you've already observed in the capital markets. My guess is that you can't raise the funding given the current state of the capital markets. If that's the case, you should just respect all business protocols and acquiesce to the wishes of your employer, so everybody can move on. After all, you have a fiduciary responsibility to First Pacific which supercedes all your fiduciary responsibilities to all their affiliates and subsidiaries. Not to mention this is a big distraction to PLDT management and could negatively impact the company's performance. Let's also not forget the fact that you wouldn't be the highly successful Manny Pangilinan you are now if not for your First Pacific principals. They gave you the business platform you needed to demonstrate your investment acumen which enabled you to achieve your current business and social status. This is no way, in my opinion, to pay them back.
Believe me, there is nothing more I'd like than to see an 'indigenous Filipino' (a term the Wall Street Journal used to described you) from a middle class background to control and own a majority of PLDT. This will send positive signals and encourage a lot of aspiring middle class Filipino entrepreneurs that they too can achieve great success even if they don't necessarily have the family resources or the 'right' surnames. Mr. Pangilinan, I urge you not to ruin your reputation and your three decades' worth of business accomplishments by acting like a rogue employee whose actions may be perceived as a mere desperate attempt to preserve his cushy position as head of one of the jewels of Philippine business. I urge you to act responsibly and professionally in this matter and conduct yourself as a first rate fiduciary. Please allow the proper business protocols to prevail.
a concerned shareholder
The views expressed in this letter are those of the writer and do not necessarily represent the views of FinanceAsia.