PLDT drops lawsuit against First Pacific

Are we entering the next phase of the PLDT-First Pac debacle?

It was one of the more astounding moments in the history of corporate Asia. It involved PLDT suing its controlling shareholder, First Pacific in a New York court. Obviously, companies don't sue their controlling shareholders very often.

However, PLDT did, in response to First Pac's attempt to sell its controlling stake to the Gokongwei family. The issue at stake was highly technical. In July, PLDT sued First Pac for failing to disclose its memorandum of agreement with Gokongwei. Since PLDT is listed in the US, First Pac should have done this when it filed its 13D statement - due to a material issue of control occurring, and First Pac owning more than 5% of PLDT.

First Pac had followed Hong Kong regulations and had filed a copy of its Hong Kong Stock Exchange statement. Its US lawyers advised that it only include a copy of the HKSE statement and not the MOA in its 13D filing. This was on the basis that MOAs are not usually used in US securities-related filings because they are viewed by the majority of knowledgeable businesspeople as no more than preliminary roadmaps, which often are changed before parties sign final and more definitive legally-binding agreements.

However, PLDT's management was keen to see the MOA and thus launched the lawsuit on the company's behalf. This was unusual as normally it would be shareholders of PLDT who would launch such a suit as opposed to the company itself.

First Pac responded to the suit and published the MOA on July 17, but PLDT did not drop its lawsuit, which left many speculating about other legal grievances it might be readying.

However, on October 21, FinanceAsia learnt that PLDT finally dropped the lawsuit; although it did so in a manner that allows it to refile it at any moment.

What this seems to suggest is a slight thawing in relations between PLDT and its (still) controlling shareholder, First Pac. A costly legal dispute has been shelved, and perhaps this could lead to quieter, more constructive negotiations behind closed doors.

What is clear is that First Pac has to do something with its PLDT stake to address its $1.75 billion of debt. Equally, the dispute hangs ominously over PLDT's own stock and the spreads on its bonds, and is clearly doing the company no good.

The ball is clearly in Manny Pangalinan's court, and it will be interesting to see what the PLDT boss does next.

Shareholders of First Pac may also wish to ask their executive chairman (who also happens to be Manny Pangalinan!) exactly how he plans to clean up this mess - a mess which could leave First Pac financially crippled. Let no one forget he still retains a fiduciary duty to the shareholders of First Pac as its executive chairman.

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