LMG deal still up in the air

LMG Chemicals Corp. has entered into negotiations with two prospective investors interested in a backdoor listing on the stock market. But while due diligence of potential buyers are ongoing, the squabble among LMG shareholders is intensifying.

In an interview last week, LMG chairman Antonio Garcia, who also chairs LMG’s controlling shareholders Chemical Industries of the Philippines (Chemphil), said one of the prospective buyers was a consumer company while another was into the oil and gas business.

After due diligence, the company hopes to close the deal by mid-March if not sooner, Garcia said.

But the transaction is being opposed by Antonio’s younger brother, Ramon Garcia, owner of Diversified Securities Inc. (DSI) and also a director of Chemphil.

For many years, Chemphil’s shares have been the subject of a garnishment case filed by the younger Garcia allegedly due to some unpaid cash advances involving the firm.

Antonio claimed that the garnishment case filed by his brother would not affect the LMG transaction.

“[Ramon] put a garnishment that has been a standing case for the last 15 to 20 years. The legal issues there are too complex for me to discuss, but it’s not going to be a deal-breaker,” Antonio said, referring to the LMG transaction. “The deal will happen in spite of [the pending case] … because if you sell the shares, you get paid. The proceeds will then be put in escrow until the decision of the court [comes out]. That’s the way it works.”

According to Ramon’s camp, the unresolved garnishment case has spoiled previous attempts to sell the shell company LMG. One proposed sale involved the Century Properties group, which eventually found another backdoor listing vehicle.

But Antonio did not acknowledge this. He claimed the deal involving Century Properties fell apart when the company found a cheaper shell firm.

Ramon’s camp, on the other hand, claimed it was because the Philippine Stock Exchange would not allow the cross of LMG shares because of the existing garnishment case.

“I don’t understand what the issue is because the board had already approved the sale of our shell company many months ago,” Antonio said. “My brother does not have veto power. As a corporation, we are governed by majority rule, so if he has a dissenting vote, fine but that doesn’t stop the transaction.”

Antonio also said the news that the prospective buyer was requiring the sellers to deliver a 98-percent block was not true. “The buyer is willing to negotiate for as long as he’s in control,” he said.

Asked for his side of the story, Ramon said in an e-mail from Japan: “My concern with the transaction is, it is not transparent. Second, it does not bring value to the stockholders except for himself. The market capitalization as of close, prior to suspension, is P1.3 billion for LMG and P1.4 billion for Chemphil. He will burn the small folk who bought LMG shares, including me.”

The family feud took a turn for the worse when Antonio questioned the sale of some shares through Ramon’s DSI, and asked the Philippine Stock Exchange to probe the brokerage.

“That’s why there’s a run on the shares because they sold some shares. But that’s something that’s being investigated and will be resolved by the PSE and I prefer not to comment,” Antonio said.

But Ramon alleged that it was Antonio’s group that was manipulating the LMG shares higher.

“DSI does not have the shares to play the market,” Ramon said. He added that the sale of certain LMG shares by DSI was only in line with its mandate to release more shares to the market for LMG to comply with the minimum public float required by the PSE for continued listing.

Ramon’s son, Jose Ricardo Garcia, a director at DSI, said the stock brokerage had only followed the instruction to comply with the public float requirement and, after the cross, it aroused the interest of the investing public, which started to speculate on the backdoor listing. Jose Ricardo then pointed out that it must be Antonio’s camp that should be investigated, explaining that the latter’s press releases about the backdoor listing had driven LMG shares higher.

“And while they are questioning the sale of those shares, they actually received payment and encashed the check (from DSI),” Jose Ricardo said.