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BIZ BUZZ: Costlier Citi deal? No biggie

/ 02:04 AM August 03, 2022

Aboitiz-led Union Bank of the Philippines has consummated its acquisition of the Philippine consumer and retail banking assets of Citi, but the price tag was finalized at P72 billion from just P55 billion previously.

To recall, UnionBank agreed last December to pay a P45-billion premium for the business plus P9.7 billion in net asset value of the businesses.

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By the time the deal was closed on Monday, however, the net asset value of Citi’s assets had gone up to P26.7 billion. So even if the premium remained at P45 billion, there was a 30-percent jump in acquisition cost for UnionBank.

Why is this so? We heard that the volume of business turned out to be even bigger than the figure when UnionBank won the bid, thus jacking up the net asset value of Citi’s businesses.

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Also, UnionBank had assumed that its takeover would cause around 10 percent of Citi’s manpower to jump ship. But the attrition rate turned out to be just 1 percent or even lower, with the entire senior team of Citi’s nonwholesale banking businesses, including prized expats, staying put.

Thus, UnionBank absorbed 1,700 new employees from Citi, including expat Manoj Varma (consumer business manager for the Philippines), who brings global experience from a 32-year stint with Citi on the table. All in all, we heard that eight expats will join UnionBank—one Russian, two Americans, one Indonesian and four Indians.

“That’s what you call diversity,” says an insider source.

These days, it’s no longer strange to have an expat working for some of our top banks. UnionBank believes it will gain more by keeping these top talents.

Overall, the deal is priced at about 2.6 times the book value of the businesses unloaded by Citi, which UnionBank deems a reasonable price multiple. UnionBank earlier completed a P40-billion stock rights offering to finance the acquisition, but we heard that the P17-billion increase in the price tag won’t require another round of fundraising as the variance was within the range anticipated by the Aboitiz group.

As to the earlier projected return on investment (18 percent over 10 years on a compounded growth basis, factoring in the resulting synergies) and impact on the bottom line (P6 billion additional earnings before tax or P12 billion net revenues annually), a UnionBank source explained: “Those were based on a lot of assumptions, and so, the current actual numbers give us confidence that we can achieve what we disclosed before, and probably more.”

—Doris Dumlao-Abadilla

Makati as PH’s Silicon Valley

Cities that rely on cutting-edge technologies and create opportunities for people to develop new ones are the cities that flourish. And Mayor Abby Binay is batting for these twin goals to transform Makati into the Philippines’ own Silicon Valley.

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Located in the southern San Francisco Bay Area of California, Silicon Valley is a global hub for technological innovation. It is home to many start-up and global technology companies like Apple, Facebook and Google.

Mayor Binay is thus enticing e-commerce, software development and other information technology (IT) companies to set up, expand, or relocate their businesses to Makati by providing a competitive environment, tax breaks and business registration assistance to startups.

To create this environment, the city has invested heavily in infrastructure, particularly the Makati subway. The mass transit system, which is aimed at boosting productivity among workers and profitability for businesses, is expected to pull in more investors to the city.

Already, Makati has around 40 IT buildings registered under the Philippine Economic Zone Authority.

And earlier this year, Makati was chosen as the pilot city for the Resiliency Innovation Sustainability and Entrepreneurship (RISE) Challenge, an incubator program of the government, academe and the private sector that offers a P500,000 equity-free grant and 12-week entrepreneurship training to eight IT startups.

Digest Ph, Empath, FilPass, Fitscovery, Kwik.insure, Pic-A-Talk, Project Fort and Synthillate will be given a chance to pitch their ventures to qualified investors this Aug. 9.

Mayor Binay shared her plan with the city’s business leaders, the Makati Business Development Council (MBDC), during their first regular members’ meeting.

She believes that as engines of growth, local governments should provide the circumstances that can make a Silicon Valley. That’s why business owners and startups in Makati will have access to finance.

No wonder the MBDC, which includes the Philippine, American, Japanese and Korean Chambers of Commerce; top management, employers and financial executives groups; and think tanks, is excited about Makati these days.

— Daxim L. Lucas INQ

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