Corporate Watch

Merger proposals, or marriage proposals by some Freudian slip: some are a good match, some are not. Or maybe we just don’t know well enough.

After a 10-year engagement to be “married,” the Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) literally “died in each other’s arms” like Shakespeare’s Romeo and Juliet (see Amelia HC Ylagan/Corporate Watch: “The Landbank-DBP merger: erase/delete/trash,” BusinessWorld, July 11, 2016). The idea of a merger between DBP and LBP started in the presidency of Gloria Arroyo and was said to be encouraged by the Bangko Sentral ng Pilipinas (BSP) “in anticipation of the wave of foreign banks that may enter the Philippine market upon the occurrence of ASEAN integration in 2015 (PNA/Asia Pulse, Feb. 16, 2016).”

In his term, President Benigno S. C. Aquino III earlier objected to the merger bill, but in February 2016, barely two months before the national elections and the sure end of his term, he signed and issued Executive Order (EO) No. 198 to merge LBP and DBP, with LBP as surviving entity. The proposal was approved in the House of Representatives; however, it was disapproved in the Senate. (, Feb. 9, 2016).

Comes the new administration of President Rodrigo Duterte. The new Finance Secretary, Carlos G. Dominguez III noted “First of all, both [were] created for different purposes. I don’t see any rational reason to put them together…One is a development bank (DBP) tasked to give long-term finance. The skills you need to do that are very different from the skills you need to do short-term finance (as with LBP), particularly for farmers (BusinessWorld, June 5, 2016).” End of the affair.

Also in the term of Aquino was the brewing “affair” between the Philippine Stock Exchange (PSE), who was giving the Philippine Dealing Exchange (PDEx) the eye. The PSE was targeting to buy at least 67% of the Philippine Dealing System Holdings Corp. (PDSHC), that owned and operated the Philippine Dealing Exchange — to merge the PSE and PDEx therefrom (BusinessMirror, Oct. 01, 2014). After a year of bank funding solicitation and the courtship of shareholders of PDSHC, PSE President Hans Sicat announced, “We’re confident we can make the minimum 67% super majority. But we think we can get probably 94% to 95% stake (, Oct, 06, 2015).”

“PSE requested for exemptive relief on the 20% industry ownership limit of Exchanges and Exchange Controllers under Section 33.2 (c) of the Securities Regulation Code (SRC). This is required before PSE can proceed to acquire 100% of the outstanding capital stock of Philippine Dealing System Holdings, Inc. (PDS), which is the parent company of the Philippine Dealing & Exchange Corp. and the Philippine Depository and Trust Company (PDTC) and is considered an Exchange Controller. PDEx is the dealing exchange for fixed income securities while PDTC acts as depository and registry for participants for both fixed income and equity securities” ( FAQs 10/2015).

The SEC raised concerns that the PSE would then be a de facto monopoly owner of all the exchanges in the country. This would significantly reduce any incentives to lower costs or improve quality on their part. This would be detrimental to public interest. Worse, the PSE’s Share Purchase Agreement with the Bankers’ Association of the Philippines (BAP) includes a 5-year non-compete clause, and Banks are largest players in the bond market (Ibid.).” End of the affair.

But see the quick rebound: “in a letter dated Jan. 16, Landbank President and CEO Alex Buenaventura sought the board’s approval for the acquisition of at least 66.67% of the PDS. He also asked the board to allow the DBP to formally engage in the transaction as the financial advisor (The Philippine Star, Jan. 19). Finance Secretary Dominguez III, ex-officio chairman of LBP, confirmed that the government will have controlling interest in the PDS/PDEx, while expressing disappointment with the PSE for not having explained how its erstwhile proposed merger with the PDS would have been for the best interest of the public (Manila Bulletin, Jan. 21).

Landbank has officially started to do due diligence on PDS (Philippine Daily Inquirer Jan. 30, 2018). It has also filed for exemptive relief on the 20% industry ownership limit in the same way that the PSE worked on this with the SEC for its proposed acquisition of the PDS then. Will the SEC rule similarly on the implications of anti-trust and perhaps monopoly?

Per computation based on 6.256 million outstanding PDSHC shares, LBP’s additional ownership of 66.67% would be equivalent to 4.171 million PDHSC shares. This, plus 1.56% (already owned through BAP), would give Landbank majority control of 68.23%, which would translate to 4.268 million PDHSC shares (Emeterio SD. Perez “Why not sell Philippine Dealing System shares to the public via an IPO? The Manila Times, Feb. 2).

Is there here a “crowding-out” of private sector opportunities vis-à-vis government, in the majority ownership by a government bank of a private dealing system? Would this be some sort of reverse privatization (government buying private)? What is the implication of a government bank owning the majority shares of a system that trades and sells mostly government bonds — 95% of its inventory?

LBP President Buenaventura said that at a price of P320 per share (which was the effective acquisition from BAP), PDS is “undervalued,” adding that purchasing the country’s bond exchange shares could be a profitable investment for Landbank (, Jan. 19). Is BAP complaining? Has it accepted the pricing of P320 per share? Are other shareholders of PDS happy, indifferent, or unhappy?

Will the Department of Finance say whether the Landbank has or does not have “skills” or the synergy of the business, with owning the majority (and effectively primarily being responsible for) a dealing system — as Landbank is in the business of “(doing) short-term finance, particularly for farmers,” as quoted earlier, in the aborted DBP-LBP merger dreamed of for 10 years? Were there strategic plans made? Will LBP income improve, by this acquisition?

There are no details yet, and it would be unfair to accuse of self-dealing or conflicts of interest at this early time. Though SEC will not comment at this stage, informal queries assure that SEC investigation and evaluation will not be hasty. The FAQs answered in detail in the SEC website regarding the aborted PSE-PDS merger comfort the public that the same meticulous care will be undertaken to fully evaluate why a government bank should be so decided to invest so much in a private endeavor.

Will the Landbank desire for the PDS survive and last? Will a “marriage” happen at all?


Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.