Can Equitable PCI be sold for a premium?

Local analysts have begun speculating on what sort of price Equitable PCI will fetch รป if it is sold.

Bankers are set to descend on Manila today to pitch the board of Equitable PCI for the advisory role on its sale. The bank has said that ideally it wants to sell a stake of between 20%-35% to a foreign strategic shareholder. However, thanks to the new Philippines takeover code, anyone who wants to buy more than 15% of the bank will have to make a general offer to all shareholders.

According to local analysts this could make for a tough sale. “The owners want a premium,” says one local bank analyst, “but I am skeptical of whether they will get it."

There are three shareholders of Equitable PCI that are looking to sell: the Social Security System which has a 25% stake; a 12% block owned by the Government Service Insurance System; and the 30% owned by the Go family.

EquitablePCIpricesThe government entities bought into Equitable PCI at Ps95 ($1.76) a share, and under their own statutes cannot sell a strategic investment at below the acquisition price.

The Go family have been in banking for 50 years, and before the merger of PCI and Equitable Bank, were the controlling shareholder of the latter.

However, Ps95 represents quite a premium to the current market price of Ps53. Given this premium, a general offer would probably see most minority shareholders tendering their stock. If all investors tendered their stock at Ps95 a share, that would cost the buyer $1.2 billion. Right now, the bank’s market cap is around $700 million. Analysts question whether any institution is ready to pay that premium – which values the bank at 1.5 times book value.

The local bidders – BPI and Metrobank – would find the acquisition tough. Metrobank did three mergers last year and is in the midst of making redundancies. Equitable PCI has huge overlaps with Metrobank in its business lines. BPI is also busy absorbing Far East Bank, and will have to seriously ask what Equitable PCI can bring to justify a price of Ps95 a share. It would benefit from Equitable PCI’s profitable Ps45 billion trust business, which is second only to its own Ps94 billion one. However, Equitable PCI's 540 branches would create a lot of overlap. Both the local banks would probably want to tender their stock in an acquisition, and this is another issue. The sellers are said to want cash, and not stock.

Foreigners rumoured to be interested include AIG/Newbridge, Standard Chartered and DBS of Singapore. DBS is already a strategic shareholder of BPI, although it has an agreement with the Ayala family to limit its ownership to 25%.

One local analyst concludes that Equitable PCI’s announcement is designed to see how much foreign interest there is in the bank – which has suffered heavy withdrawals due to its association with the Estrada impeachment trial (see related articles). Whether a sale actually happens, says the same analyst, is far from certain.