When word got out early this year that businessman Manuel V. Pangilinan was in talks to acquire GMA Network Inc., shares of the country’s second-largest broadcast firm immediately shot up with the expectation that the telco executive would pay a big premium for a shot at the lead in the competitive television industry.
As far back as January, GMA 7’s stock price rocketed from a sleepy level of P6.70 a share—below its initial public offering price of P8.50 apiece—to peak at P10.90 in July when the rumor mill was in a frenzy about the impending entry of MVP.
Ten months after one of the most protracted negotiations in local corporate acquisition history—and more than a decade after the Indonesian-backed tycoon first expressed interest in buying GMA 7—the deal collapsed for good, leaving many market watchers wondering what happened to efforts of the normally deal-savvy Pangilinan.
Several sources interviewed by the Inquirer confirmed part of the official statements issued by both the Philippine Long Distance Telephone Co. and GMA 7: Price was not the deal breaker that scuttled the deal—or more accurately, “price, per se” was not the main point of contention.
First encounter
When Pangilinan first sought to acquire GMA 7 early in the last decade, the owners of the network—the triumvirate of the Gozon, Duavit and Jimenez families—set an asking price of P13 billion. At that time, the network was just beginning to narrow the television ratings gap with its bigger rival, ABS-CBN Broadcasting Corp., after decades of gestation as a distant No. 2 in the industry.
One source familiar with the courtship between Pangilinan and GMA 7 said the former had felt that the acquisition price was too high given the network’s market standing. Nonetheless, discussions for the deal went ahead and stood a good chance of being consummated when—according to one person with knowledge of the negotiations—financial markets were disrupted by the terrorist attacks in the United States on Sept. 11, 2001.
“All of a sudden, (Pangilinan) found his funders backing out because of the sudden rise in risk around the world,” the source said.
The PLDT chief would later say that, on hindsight, the asking price of GMA 7’s owners during their first round of negotiations was attractive compared to subsequent prices quoted.
Both parties spoke again a few years ago at an informal level about a potential buy-in at around the same time Pangilinan’s rival in the mergers-and-acquisitions space—San Miguel group chief Ramon S. Ang—began talking informally to the owners of GMA 7.
A year later, the network had another suitor in the form of the Ayala group, but it was Pangilinan who was the most interested, the source said.
Thus, when formal negotiations resumed in late 2011, Pangilinan came to the table ready with a bid of P50 billion for 80 percent of the network’s outstanding capital stock, both in the form of common and preferred shares.
Led by the Gozon and Duavit families, GMA 7 countered with an asking price of P55 billion, and both parties soon met halfway, agreeing on a price of P52.5 billion in June of this year.
Lesson learned
According to one person familiar with the negotiations, however, Pangilinan’s camp was weighed down by the memory of its recent troubles that came after PLDT’s P70-billion acquisition of Digital Telecommunications Philippines Inc. (the operator of the Sun Cellular brand) from the Gokongwei family last year.
In the wake of that deal, PLDT was forced by regulators to give up Digitel’s most prized asset—a coveted 3G frequency—amid accusations by the Ayala group’s Globe Telecom Inc. that a merged PLDT-Digitel entity would have near-monopoly powers detrimental to consumers.
“[Pangilinan] had obviously learned from that mistake, and he was anticipating that the Lopez family (the owners of ABS-CBN) would put up a fight in Congress,” said another source familiar with the PLDT group’s stand on the issue. “The [PLDT-GMA 7] deal is vulnerable to being attacked on the franchise issue.”
In fact, no less than Pangilinan himself had admitted to reporters that he expected the deal to be questioned by Congress in terms of GMA 7’s franchise to operate which, for broadcast firms in general, was non-transferable.
“Fighting for a congressional franchise with national elections approaching would be a challenging undertaking,” the source said, adding that Pangilinan’s control of Associated Broadcasting Corp.’s TV5 would also expose him to the same “monopoly” criticism leveled against him during the PLDT-Digitel deal.
Because of this, the PLDT side had asked its GMA 7 counterpart for several provisions in the prospective deal that would minimize the latter’s losses in the event that regulatory pressure arose. In particular, both sides agreed on the concept of a down payment—ahead of the full P52.5-billion payment—which Pangilinan would forfeit if roadblocks made the acquisition of GMA 7 or its merger with TV5 untenable.
“MVP’s side was offering a down payment of 5 percent of the total deal as a ‘walk away’ fee,” said a third source, who explained that the amount was rejected by the Gozon-Duavit-Jimenez families as too small (P2.6 billion, to be shared pro rata among the three shareholder groups). “What they wanted was a ‘walk away’ fee of 10 percent.”
‘Annus horribilis’
While normally unfazed by steep asking prices, Pangilinan’s group was also dealing with several issues simultaneously, some of them with potentially significant financial impacts on the conglomerate.
Apart from the P70-billion deal with the Gokongwei family for Digitel, Pangilinan-controlled Philex Mining Corp. was recently fined by the government to the tune of P1 billion for two accidental leaks of mining waste at its only operating mine (whose operations were also ordered suspended for the rest of the year). Cash-hungry TV5, meanwhile, continues to lose money after reporting a P4.1-billion net loss in 2011.
“Given all these problems, it’s not surprising that PLDT found GMA 7’s demand a bit steep,” the source said.
Several meetings were held over the last few months between both camps in an effort to save the deal, but by this time, the negotiating positions of either side had already firmed up.
“The GMA 7 side was basically saying to the PLDT side: You guys came to us. We didn’t come offering it to you. Why so many conditions all of a sudden?” the source explained.
Thus, last week—after over a decade of on-again, off-again negotiations that have sometimes been described as a “lovers’ quarrel”—the PLDT-GMA 7 courtship came to an end.