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San Miguel pulls out of telco industry in $1.5-B deal with giants




Posted on May 31, 2016


THE PHILIPPINES’ two main telecoms firms together agreed to buy conglomerate San Miguel Corp. out of the sector for $1.5 billion, pledging to invest heavily to boost snail-pace internet service in the country’s biggest deal in nearly three years.

Shares in both Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom, Inc. jumped after they said they will buy San Miguel’s telecoms units in a 50-50 purchase valued at 69.1 billion pesos ($1.48 billion). The pair will finance the deal via debt and asset sales.

San Miguel’s telecoms assets are folded under Vega Telecom Inc., and the transaction covers its stake in Bell Telecommunication Philippines, Inc., Liberty Telecoms Holdings, Inc. and Eastern Telecommunications Philippines, Inc.

The transaction is expected to be completed by May next year, with 50% of the purchase price settled on Monday.

San Miguel’s move to pull out of what was a fledgling business for the food-to-power group is subject to regulatory clearance and comes more than two months after talks on a joint venture with Australia’s Telstra Corp Ltd. collapsed. San Miguel said it plans to allocate proceeds to other infrastructure projects.

“This is a sacrifice we have to make to finally unlock the full potential of our high-quality, mobile broadband spectrum faster and allow consumers access to its benefits through the combined resources, network and expertise of the two carriers,” San Miguel President and COO Ramon S. Ang said in a statement.



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The deal also follows hard on the heels of president-elect Rodrigo R. Duterte’s warning that he may ease rules on foreign ownership of firms to stoke one of Asia’s fastest-growing economies, plagued by chronically slow web speeds. But it also cements the grip of a pair that effectively control all of a market worth about $6 billion by annual revenue, raising the bar for potential new entrants.

Under terms of the deal, PLDT and Globe will acquire a 700 Mhz spectrum network from San Miguel -- prized for its wider reach and compatibility with 4G telecoms services -- and said they will return certain other radio frequencies to the government, allowing for a new competitor to begin operations.

“This will enable existing operators to provide significantly improved Internet and data services,” PLDT Chief Executive Officer Manuel V. Pangilinan said in a statement. “At the same time, it leaves the door open for new entrants into the industry.”

DOMINANCE SEALED
While other operators exist in the Philippines, like San Miguel, they have yet to develop active product offerings for customers. Industry experts said the deal effectively sealed the dominance of PLDT and Globe, which now have 57% and 43% of the wireless market, respectively.

“It should be good for all but better for PLDT and Globe,” Juanis G. Barredo, vice president and chief technical analyst at COL Financial Group Inc., said in a mobile phone reply.

“700 mhz can drive efficiency and expand network capability,” he added.

Justino B. Calaycay, Jr., head of marketing and research at A&A Securities, Inc., said: “In gist, it could speed up expansion of digital [services].”

But, he said, “we no longer see a third party telecom which is a plus for both PLDT and Globe.”

“It will be very difficult for a new player to enter. What (the government) should do is to review all spectrum allocations to reserve space for new players,” Internet Society Philippines chairman Winthrop Yu said.

The Philippine Competition Commission said in response to the deal’s announcement that it will look into the transaction. “The Commission shall assess and take action as appropriate,” the regulator said in a statement.

The Philippines ranked 21st out of 22 Asian countries in terms of internet speed, just ahead of Afghanistan, according to a study by data analytics firm Ookla. The prospect of a much-needed deal to rev up web use sent shares in all three companies sharply higher: PLDT climbed as much as 11%, while Globe and San Miguel each jumped more than 6% at one point.

While the deal -- the largest since JG Summit Holdings Inc. acquired San Miguel’s shares in Manila Electric Co. for $1.66 bln in October 2013 -- is subject to shareholder and regulatory approvals, it won’t require parliamentary clearance, said Ray C. Espinosa, PLDT’s head of regulatory affairs, speaking during a news conference.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. -- Reuters with T. M. B. Umali