The Securities and Exchange Commission (SEC) halted Korean firm Lotte Chilsung Beverage Co. Ltd.’s offer to buy a big chunk of Pepsi Cola Products Philippines Inc. (PCPPI) amid questions on the independence of an advisor tapped to evaluate the deal.
The SEC called out the Korean firm, already the controlling shareholder of PCPPI, for noncompliance in connection with the guidelines on the conduct of valuation and issuance of fairness opinion under rule 19 of the Securities Regulation Code’s 2015 implementing rules and regulations, explained SEC Commission Secretary Arman Pan.
Lotte was asked to stop the tender offer pending the resolution of “certain issues,” Lotte Chilsung representatives said in a Feb. 4 letter that was disclosed by the PCPPI to the Philippine Stock Exchange on Wednesday.
“Among others, the fairness opinion attached to the tender offer report filed by Lotte was issued by P&A Grant Thornton, which is currently providing bookkeeping services to two entities related to PCPPI,” the SEC official explained. The regulator is referring to Punongbayan & Araullo, the Philippine arm of Grant Thornton International Ltd.
“The [Markets and Securities Regulation Department] finds that the business relationship of P&A Grant Thornton with the two entities, where PCPPI holds substantial shareholdings, could reasonably be perceived to undermine its independence to conduct and issue the fairness opinion.”
A fairness opinion is a report written by qualified analysts or advisors that evaluates the facts of a merger, acquisition, carve-out, spin-off, buyback or another type of purchase and provides an opinion as to whether or not the proposed stock price is fair.
Aside from the cease-and-desist order, the SEC directed Lotte to “allow the shareholders who tendered their shares to withdraw the same.”
Lotte, which invested in PCPPI nine years ago, offered to buy about 2.134 billion common shares of PCPPI equivalent to 57.78 percent of outstanding stock at P1.95 per share.
PCPPI stated in the tender offer report that it had “no plans” to delist.
In a statement, Lotte said it was “working with the SEC to clarify this issue and show that P&A is an independent firm qualified to issue the fairness opinion.” It added P&A’s bookkeeping services were properly disclosed. Lotte intends to continue the tender offer once the issues are resolved.