NOTE: This was a story I wrote a year as part of my coverage of how the Lopez family lost control of a ‘crown jewel,’ Meralco.
This was published on May 25, 2009 on the news sites of ABS-CBN and Newsbreak, but the links are both dead now. There have been many changes and challenges within the Lopez family itself, as well as in the boardrooms of the companies they run. I hope that sharing this piece of history provides context to the never-ending evolution of the Lopez family.

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Expect no fireworks in Tuesday’s Meralco stockholder meeting on Tuesday. Unlike the spirited and almost 10-hour long meeting and voting in 2008, this year’s will be normal and, as a key officer put it, ‘boring.’

Yet, suspicions about efforts—hostile or not—to swing the company’s reins to the side of any of its three major shareholders will likely continue long after the annual stockholders meeting this year is adjourned.

In the Philippine business arena, Meralco’s boardroom goings on have been one of the most watched. This year is not an exemption. No less than the country’s biggest and most powerful titans are the cast of characters.

So far, only in Meralco could Filipinos and observers of Philippine society and business watch how the rich and powerful Lopez family, the massive telecommunications empire of the Philippine Long Distance Telephone Company (PLDT), and once Asia’s biggest food and drinks conglomerate San Miguel Corporation (SMC), glide and collide.

Finished

The battle for board control has long been fought—way back in the late afternoon of March 13, when the alliance of the Lopez family and the PLDT group of Hongkong-baed First Pacific Holdings announced a purchase transaction that involved voting their combined 43 percent stake together.

That late Friday announcement came right before the company’s deadline last May 16, a Monday, essentially sealing the fate of the three major Meralco shareholders—the Lopezes, PLDT and San Miguel—come May 26. Only those who were nominated to the board before May 16 would be elected during the annual stockholders meeting on Tuesday.

Since there are only 11 seats available in Meralco’s board, all 11 nominees (one backed out) are now assured of a slot in the Meralco boardroom.

Going by the composition of the board nominees, the Lopez-PLDT alliance is able to field 5, beating San Miguel’s nominees who only total 4. Both PLDT chairman Manuel Pangilinan and San Miguel president and CEO Ramon Ang are nominees.

The other 2 slots are reserved for independent directors, who by practice, are each fielded by one camp and approved by the other.

It would also not be a surprise if Manuel “Manolo” Lopez Jr. retains his post as chairman of the board since key executives of all three major owners have repeatedly made statements that Lopez will stay on.

P44-B worth board seats

Ten days before the board election, all proxy forms are at hand. The PLDT-Lopez alliance seem to be confident that they have the numbers, had subsequently dotted their i’s and crossed their t’s before the meeting starts at 9am.  

“It would be a boring meeting,” said Elpidio Ibanez, president of First Philippine Holdings Corp., which is the corporate vehicle of the Lopezes that has a stake in Meralco.

“It would be over in an hour since there would be no issues about the proxies,” Ibanez said. Last year, the meeting dragged for hours since several proxy forms were disputed by the camp of the Government Service Insurance Corporation (GSIS), whose president and general manager Winston Garcia, waged a personal and bitter war against the Lopezes, especially Manolo, whom he described as snooty. 

Yet, when San Miguel’s Ramon Ang admitted to reporters lately that the former food and drinks conglomerate and its allies have upped their stake in Meralco to 43 percent from a direct and indirect 34 percent, observers wondered if the battle for board control is really over, as the Lopez-PLDT had assumed.

For San Miguel to further boost its Meralco stake, market players speculate that it could have acquired its extra 9 percent stake from the open market. There has been no holder of a major or vote-swaying block since San Miguel originally clinched the 27 percent from GSIS, and the additional 7 or so percent from other government financial institutions.

Market players speculate that San Miguel had spent about P10 billion acquiring that extra 9 percent stake through the recent months to ramp up its Meralco shares to 43 percent. In the past 30 days, Meralco’s shares traded between P88.5 and P109.

That P10 billion is on top of the P34 billion it is going to pay GSIS and the state-owned institutions, for the shares it acquired at P90 each. The earlier purchases are on an interest-free and generous 3-year payment terms, however.

For pouring that much resources into Meralco, market players and analysts wonder if San Miguel would not move heaven and earth to acquire control of the power firm. “San Miguel definitely knows the importance of being in control. It has basically taken over management and the board of Petron Corp (oil refiner and retailer) even if it has paid just less than P500 million in downpayment,” said an investment banker who asked not to be named since he did not want the three groups to get the impression he is biased.

A market analyst who also requested anonymity cited San Miguel Brewery (SMB), the beer unit of San Miguel Corporation, as an example. “When they sold SMB to Kirin [Holdings of Japan], they kept 51 percent in SMB. The control of the company’s future, including its finances, business strategy, etcetera, is still there on the palm of their hands. Good businessmen know that control of the company is vital.”

He added, “If they [San Miguel directors] are just there sitting during the Meralco board meetings, it will be difficult to explain to their shareholders why their seats are very expensive. They are worth billions of pesos.”

Buy more

Since it had missed the procedural deadlines to assert control during the stockholder meeting this year, San Miguel could still go for more shares at the open market until it has enough to qualify for additional seats in the Meralco boardroom. (A board seat in Meralco is worth about P10 billion based on current prices.)

Thus, the fireworks may not happen on Tuesday but in board meetings afterwards.

One option is to keep on the tedious task of pursuing individual sellers at the stock market where Meralco shares are currently traded. By abs-cbnnews.com/Newsbreak’s calculation, about 152 million shares remain on free float. That’s about 13.6 percent stake in the company worth about P16 billion.

The public used to hold about 30 percent of Meralco, but this has dwindled to just 13.6 percent after a PLDT unit acquired a 10 percent block, while San Miguel’s Ramon Ang have admitted that they, together with GSIS, have been accumulating, too.

These acquisitions have pushed the Meralco share price up. It closed at P106 on Monday.

A utility analyst told abs-cbnnews.com/Newsbreak, “I don’t think the [Meralco] stock should be more than 70. It is trading over 20-times its price-earnings [PE] ratio while the rest of the Philippine market is on 13-times PE. Other power companies are at eight to nine-times PE.”

He explained that the premium on the Meralco stock price is “reflective of a belief that a transaction, or a buyout, among the three parties is forthcoming.”

Lopez Inc.

Another option is for San Miguel to target Lopez Inc., the family’s private holding company, which, in turn, is owned by the respective holding companies of the families of siblings Oscar Lopez, Manuel Lopez, Presentacion Psinakis, and the heirs of Eugenio Lopez II.

Meralco is under Oscar Lopez’s holding firm, First Philippine Holdings Corp. (FPHC), the holding company for power-related assets. On March 19, FPHC transferred the voting rights of some 43.08 percent shares from publicly listed Benpres Holdings to unlisted Lopez Inc. In a statement, FPHC said that this move was an effort to ward off any hostile take over efforts.

Because of the pyramid structure of the family’s companies, whoever controls Lopez Inc inevitably controls Benpres, media group ABS-CBN, FPHC’s power generation businesses, and the crown jewel Meralco.

San Miguel’s Ramon Ang has reportedly charmed Manuel Lopez with his many novel ideas. Oscar Lopez, on the other hand, is less impressed. He had publicly criticized Ang for giving the public “false hopes” on drastic electricity price cuts, and for not having a clear business focus for San Miguel.

Oscar Lopez had said that the sale of 60 percent of their holdings in Meralco, which had Manolo at the helm for many years, was a business decision. In a statement last March, Oscar said, “”Given how Meralco’s history has long been intertwined with our family, acceptance of this sale was not easy, most especially by my brother Manolo, who has invested more than 30 years of his life with the company.”

In the FPHC stockholders meeting on Monday, Manolo, who was re-elected as a board director of FPHC, was conspicuously absent. When asked of Manolo’s whereabouts, Ibanez said, “Manolo is I think preparing for the Meralco stockholders’ meeting [on Tuesday.]”

Abs-cbnnews.com/Newsbreak also tried to get comments from Presentation Psinakis, who was present at the FPHC meeting, but she said, “I’d rather not be interviewed about that.”

Ibanez stressed, however, “The family is solid.”