Corporate Securities Info

White knight

/ 04:01 AM February 11, 2020

The takeover by business tycoon Enrique Razon Jr. of Manila Water Co. Inc. from its erstwhile controlling stockholder, Ayala Corp., has the makings of a “white knight” strategy.

A white knight is a “person or company making an acceptable counteroffer for a company facing a hostile takeover bid.”The phrase is a takeoff from the folklore of knights in shining armor coming to the rescue of distressed damsels. The color white is supposed to represent the purity or benevolence of their action.


That description grew out of the United States in the 1980s when iconic companies became the target of buyouts by investors who believed a change in management control would be in the best interests of the stockholders.

If the target company thought the buyout was not motivated by good intentions, e.g., to break it up and sell its components separately or, if it has vast real estate holdings, to use them for purposes other than for which they were acquired, it looked for a “friendly” or acceptable investor who can help block the takeover bid.The white knight was often someone the incumbent management team believed it can work with harmoniously and, most importantly, had financial gravitas.


Razon, who is widely perceived to be in good terms with President Duterte, appears to be the person who may be able to temper the latter’s rants against Manila Water and Maynilad Water Services Inc. over the alleged onerous water concession agreements they entered into with the government.That perception has gained traction in the business circles because Razon had, on several occasions, proven his ability to get things his way in his run-ins with government offices.

Also working in his favor is his experience in dealing with the governments of the countries whose container terminals his companies are managing.If he can comfortably do business with the port authorities of Indonesia, Pakistan and Australia, among others, he must have good negotiation skills that meet international standards.

Considering the expectations created by Mr. Duterte’s criticisms of the two companies, a tough job awaits Razon in finding a win-win solution to the water concession issue, at least as far as Manila Water is concerned.

No doubt, the government would ask for the lowest rate of return possible. As to how low Manila Water can agree to that demand without risking the company’s viability and, in the process, the stockholders’ return on investments, would test Razon’s negotiation savvy.

Judging from the statements of administration officials, expect the government to also seek to remove provisions in the agreement that relate to going to arbitration in case of disputes and noninterference of the government in tariff setting.

These demands, if granted, would put Manila Water at the mercy of regulators who are prone to political pressure and public opinion in the performance of their duties.

Thus, Razon may have to come up with innovative ideas on how to resolve disputes between the parties without going to arbitration or, if they agree to arbitration, ensure its impartiality and prompt disposition.Going to court for dispute resolution would not be a good idea considering the deplorable state of our judicial system.


Bear in mind that in renegotiating Manila Water’s concession agreement, Razon is obliged to comply with his fiduciary obligations to the stockholders with regard to the protection of their investments and to the company’s creditors on the timely payment of the company’s loan obligations.How Razon would deal with the government’s demands for a supposedly less onerous water concession agreement without compromising Manila Water’s interests would be closely watched by Maynilad.

Depending on the way things pan out, Maynilad may also decide to get a white knight of its own. INQ

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