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Corporate Securities Info

Corporate takeover jitters

/ 11:10 PM July 12, 2012

No final documents may have been signed, but from the looks of it, denials notwithstanding, broadcast giant GMA Network Inc. is poised to come under the umbrella of the conglomerate headed by businessman Manuel V. Pangilinan.

According to reports, a unit of the Beneficial Trust Fund of PLDT is acquiring 80 percent of GMA’s stockholdings for P42 billion (or 80 percent of the firm’s valuation of P52.5 billion).

The price could go higher if the rest of the stockholders would sell their shares pursuant to the tender offer that the unit is obliged to make as soon as the buyout is completed.


Under existing regulations, if more than 51 percent of the stocks of a public company, like GMA, are acquired by a party, the latter is required to offer to buy the remaining stocks under the same terms and conditions as the original purchase.

This requirement aims to protect the interests of the minority stockholders who, before the tender offer rules were imposed, were left out in lucrative buyout transactions involving majority stockholders.

If the GMA deal hurdles all regulatory requirements, especially the prohibition on monopolies and combinations in restraint of trade, the merged resources of GMA and TV5 (a unit of Pangilinan-controlled businesses) could give ABS-CBN a run for its money.


Although Pangilinan’s group has announced that, in spite of the common ownership, the two networks will operate independently, GMA’s staff may have reasons to worry about the security of their employment or the benefits they presently enjoy.

Obviously, in terms of capitalization, facilities and market reach, TV5 lags behind GMA. That “infirmity,” however, is compensated by the fact that TV5 is an organic part of the acquiring company.

It is common practice in mergers and acquisitions involving companies that compete for the same target market to keep their operations apart for the first two or three years so they can figure out their respective strengths and weaknesses.

After completing the getting-to-know-you phase, either of two things usually happens: the acquired company is reduced to the level of a division of the acquiring company, or is dissolved with the latter emerging as the sole surviving entity.


In any of these developments, existing divisions are shut down, redundant employees laid off and supervisors or managers reassigned or given their walking papers.

Often, because of their subordinate status in the corporate hierarchy, the staff of the acquired company find themselves at the shorter end of the reorganization.


The usual approach that management takes when it wants to downsize (the politically correct term for terminating employment) is to offer “golden parachutes” or separation packages that provide generous financial and post-employment benefits.

These may consist of, say, 200 percent of the employee’s annual salary multiplied by his years of service, plus medical and hospitalization privileges for a fixed period of time.

If the affected employee has worked for at least 10 years and is 50 years old at the time of the termination of his employment, these benefits are exempt from income tax.

To enjoy this tax break, however, it is essential that the termination is against his will or without his consent or, where applicable, in accordance with a retirement program approved by the Bureau of Internal Revenue.

Failure to meet these conditions would put the affected employee in serious trouble with the BIR.

Since tax exemptions are strictly interpreted against the claiming party, appeals for compassion or special consideration due to old age or sickness would be insufficient to dissuade the BIR from doing its job.


For employees in their 30s or, if above that age bracket, possess marketable talents or skills, the golden parachute is manna from heaven.

It presents an opportunity to explore new employment prospects that offer better compensation, with a financial cushion to boot, courtesy of the former employer.

But not for employees who are nearing retirement age or no longer have the qualifications that can attract prospective employers in this IT driven age.

Unless they’re the equivalent of a king’s ransom, the separation or retirement benefits may not be enough to support them comfortably for the remaining years of their lives. More so if they have dependents who are still of school age or require financial assistance.

Not all separation schemes, even if lucrative, succeed in convincing the object of management’s downsizing programs into accepting them.

If the new management cannot persuade employees who no longer meet its productivity standards to give up their employment, subtle “shame campaign” techniques are sometimes resorted to.

These include reduction of work responsibilities, making supervisors report to somebody younger in age, transfer to hardship posts, restriction of privileges or other acts meant to send the message to the targeted employee that he is no longer considered a valuable member of the organization.

Employees who cannot afford to lose their job for personal or family considerations have no choice but suffer in silence the pressures brought upon them to quit.

Although employees cannot be coerced into resigning or retiring, the reality on the ground is that it is not worth the effort to contest separation or retirement schemes. The Labor Code has practically given employers a blank check on this matter.

Worse, the dice in our labor courts are loaded against employees or laborers.

(For feedback, please write to rpalabrica@inquirer.com.ph.)

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TAGS: Business, featured column, GMA Network Inc., mergers and acquisitions, PLDT
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