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IF a
buyback plan is intended to enhance the stock’s market
value, then, perhaps, Philex Mining Corp. had succeeded
in doing this based on the sale of 209.595 million
shares at P7.50-per-share by businessman John Gokongwei
Jr. and the companies which he and his family control.
In this deal, which took place on September 10, 2008,
Philex paid at a P0.20-premium over market, or P1.572
billion. Philex opened the session that day at P7.30,
hit a high of P7.40, then dropped to a low of P7.20 and
closed at P7.30.
Gokongwei, a big market player, who reads the market
quotations everyday and knows if there are typographical
errors in these reports, has played his cards well by
selling his Philex holdings although he and his
companies failed to unload at the market’s high, which
Philex recorded at P7.80 on August 20, 2008. After
selling 44.847 million Philex shares, he still owns
816,910 shares. Gokongwei has been a member of Philex’s
nine-man board since 1993.
However,
Philex did not do well on Thursday and Friday, when it
closed at P7. On Friday, Philex even dropped to a low of
P6.90, probably because the public investors didn’t know
yet when the mining company will end its buyback program
and the perception that it does not have the cash to pay
for additional acquisitions. On Friday, it bought back
five-million shares at P7, closing the week with 778.646
million treasury shares and 3.102 billion outstanding
shares. Philex originally planned to buyback 386 million
shares way back as approved by its board on March 25,
2008.
The
market investors were to learn also on Friday that
Philex had two big surprises for them: it would not pay
Gokongwei and his companies in full but in two
installments: 50 percent on September 15, 2008, which
was yesterday, and the remaining 50 percent on September
22, 2008. Was P1.572 billion, too big an amount for
Philex in buying out the Gokongweis?
Incidentally, Philex boasts of P6.911-billion retained
earnings but which could drastically be reduced by its
continued stock reacquisition. At P7 per share—rather a
high assumption—Philex could have spent P5.45 billion on
778.646 million treasury shares. The cost of treasury
shares, however, is not directly deducted from
unrestricted retained earnings but from the total
stockholders’ equity. But without enough retained
earnings, a company is not allowed to engage in a
buyback, unless the Securities and Exchange Commission
makes an exception.
From its
filing, Philex, it seems, is raising the money to pay
Gokongwei and his companies by reissuing its treasury
shares. In its September 12 filing, it told regulators
that it “is engaged in intensive negotiations with
several foreign strategic investors for the sale of
these shares,” referring to the treasury shares, which
it said now represent 20 percent of its issued shares
(3.102 billion outstanding shares plus 778.646 million
treasury shares equals 3.881 billion issued shares) or a
total of 776.116 million shares, which, in turn, is
equivalent to 25.02 percent of outstanding shares.
Never
mind if it is 776.116 million or 620.387 million (20
percent of 3.102 billion outstanding shares) treasury
shares that are the subject of “intensive negotiations”
for resale to prospective buyers.
What is
crucial to Gokongwei and to other stockholders who sold
their Philex shares back to the company is knowing the
premium the mining company is will get in selling back
the treasury shares, a corporate act that makes Philex a
broker or a middleman. “As a 20-percent block, these
shares command a significant premium over our
acquisition cost due to the fact that the acquiring
investor can equity account the income of their
investments on these shares in their financial
statement,” Philex told PSE in its filing.
The
results of the “intensive negotiations” are worth
waiting for if only to see how much Gokongwei and his
companies are bound to “lose.” Will the treasury shares
command a price much higher than P7.50?
Addendum.
If Philex succeeds in selling its treasury shares, will
it not end up being controlled by foreigners? Various
filings suggest the possibility that foreign ownership
in Philex may exceed the legal limit of 40 percent. As
of December 31, 2007, Philex disclosed that 22.85
percent of its outstanding shares are held by “foreign
nationals and institutions,” which are among its 46,822
stockholders. This foreign stake plus the treasury
shares if sold to foreigners, equals 42.85 percent. HSBC
Corp. acts as record stockholder for the beneficial
owners of 573.816 million shares or 19.331 percent, as
of end-2007. This ownership increased to 603.889 million
shares, or 19.468 as of June 30, 2008.
HSBC is
not the only foreign banks, which act as trustees for
foreign investors. As of June 30, 2008, Citibank NA,
holds 92.856 million Philex shares; Deutsche Bank,
22.083 million Philex shares; and Standard Chartered
Bank, 54.563 million shares. Together, these banks—along
with AIG Philam Bank—combine for 777.608 million, a big
block equivalent to 25.069 percent of outstanding
shares. |
