JTH Davies Holdings completes share-swap with STI for 96% ownership

MANILA, Philippines—JTH Davies Holdings Inc. has completed a share-swap with businessman Eusebio Tanco and other shareholders of STI Education Services Group Inc. that will allow the company to own 96 percent of the latter in line with its transformation into a holding firm for education assets.

JTH, soon to be renamed STI Holdings Inc., disclosed to the Philippine Stock Exchange on Wednesday that it has executed the share-swap transactions with majority shareholders of STI. Apart from Tanco, these are Rescom Developers, Eujo Philippines Inc , Insurance Builders Inc. and Prudent Resources Inc.

The company also executed a share-swap with 90 other minority shareholders of STI.

The share-swap was based on an exchange ratio of 6.5 shares of JTH for every one STI share as approved by JTH’s stockholders in a special meeting held last August. Pursuant to the swap agreements, JTH will issue a total of 5.9 billion common shares in exchange for 907.97 million STI shares.

But before JTH’s takeover of a 96 percent stake in STI takes effect, the company needs clearance from the Bureau of Internal Revenue and the Securities and Exchange Commission.

In the case of the BIR, the company has applied for a ruling that the transaction between JTH and majority shareholders is tax-free. Pursuant to the listing rules on Philippine Stock Exchange, the shares to be issued will be locked up for 180 days after listing. Meanwhile, the minority shareholders of STI will pay capital gains.

JTH is also seeking approval from the SEC for its move to raise as much as P4.5 billion from a follow-on offering for the expansion of its education business. The group’s proposition is investing in a pure education play as it maintains and operates the Philippines’ largest private for-profit network of educational institutions with its STI Colleges network as well as its interest in Philippine Women’s University.

STI’s business is supported by the growing importance of the Philippine service sector, the expanding population and rising middle-income demographics. The group believes that the scale of its model will enable it to benefit from the continuous growth.

Enrollment in the STI network has increased by 40.4 percent from 47,988 students in the 2004-2005 academic year to 67,361 students in the 2012-2013 academic year. STI has been in the education business for 29 years.

The group aims to grow further its business by expanding enrollment as well as growing wholly owned school network. Since STI’s wholly owned campuses have better control of operations at the campuses and provide the group with higher profit margins compared with its franchised schools, the group said it has been “evaluating its franchise network” and selectively reacquired certain franchisees and converted them to wholly owned schools.

The group to date has 65 STI branded college campuses and 20 educational centers, two non-branded colleges and one university. The group operates the STI network through subsidiary STI Educational Services Group (ESG). Of the network, 26 are college campuses directly operated by STI ESG, 39 operated by franchisees and 16 education centers operated by franchisees.

In addition to STI, the group will have a management agreement with and a 40-percent interest in PWU.

The group, through STI ESG, also has a 20 percent interest in STI Investments, which in partnership with certain members of the Tanco group, provides financial products such as pre-need savings plan for education, retirement and funeral costs as well as HMO [health maintenance organization] and life insurance.

JTH will be renamed STI Holdings subject to approval of charter amendments by the SEC.