Court of Appeals affirms ruling favoring PLDT’s preferred-to-common shares deal

MANILA, Philippines—The Court of Appeals has upheld a Makati City regional trial court’s decision declaring as a nuisance or harassment suit the petition filed by former Securities and Exchange Commission (SEC) chair Perfecto Yasay Jr., questioning the move of the Philippine Long Distance Telephone Co., (PLDT) to redeem the preferred shares of its stockholders and then converting them to common shares.

In a 20-page ruling promulgated this month, the CA 17th division dismissed the petition for review sought by Yasay and Edgardo de Leon on the Sept. 12, 2012, resolution of branch 149 of the Makati RTC.

Yasay and De Leon are among stockholders who subscribed to preferred shares under the Subscriber Investment Plan (SIP) that were issued by PLDT as early as 1973. De Leon also subscribed to 10 PLDT common shares.

On July 5, 2011, PLDT’s board of directors approved a resolution amending the Seventh Article of its Article of Incorporation, which sub-classified the authorized preferred stock of the telecommunications giant into 150,000,000 shares of voting preferred shares of P1 each and 807,500,000 shares of non-voting serial preferred stock, with a par valued of P10 each.

On Sept. 23, 2011, the board authorized PLDT to redeem effective Jan. 19, 2012, its SIP preferred shares. PLDT sent notices to affected SIP preferred shareholders informing them of the redemption plan and gave details on how they can claim their redemption payments or avail of the option to convert their stocks to common shares.

But the petitioners did not avail of the conversion option or surrender their stock certifications on the redemption date. They wrote PLDT on Jan. 31, 2012, opposing the move and asking the firm to reverse such action but the telecom giant said its action was in accordance to the terms and conditions approved by the National Telecommunications Commission.

Yasay and De Leon went to the Makati RTC on March 16, 2012, to stop a stockholders’ meeting of the PLDT on March 22, 2012, and to nullify PLDT’s redemption of all issued and outstanding SIP preferred shares.

On March 22, the RTC denied the petitions to stop the stockholders’ meeting.

PLDT then filed a motion to the court seeking to declare Yasay and De Leon’s complaint as a nuisance or harassment suit on the grounds among others, that the petitioners’ shares was insignificant and their reasons were “flimsy.”

But the lower court declared the complaint against PLDT as a nuisance or harassment suit, saying among others that the redemption of the shares was not prohibited by law.

This prompted the petitioners to go to the appellate court, which did not find their petition as meritorious.

In the ruling issued by Associate Justice Pedro Corales, the appellate court division upheld the legality of the move of PLDT to redeem SIP preferred shares, saying corporations like PLDT can repurchase already issued shares “provided that the terms of its issuance expressly state that said shares may be redeemed at the option of either the issuing corporation, the stockholder, or both at a certain redemption price.”

The court disagreed with the petitioners’ argument that Presidential Decree no. 127 barred redemption of preferred shares.

“Nothing therein prohibits the imposition of other terms and conditions on the preferred shares including the right to redeem the same. The language of PD 127 is clear and unequivocal..,” said the court.

Saying it agreed with the RTC that the complaint of the petitioners against PLDT was a nuisance or harassment suit, the court division said that for one, their preferred shares only amount to 180 each and which had been redeemed by PLDT. Thus, their shareholding was “definitely insignificant,” according to the court.

It said Yasay lost his status as a stockholder of PLDT and his standing to file an action against it when his shares were redeemed.

On the other hand, De Leon was deemed by the court as a stockholder because of his 10 common shares at PLDT but it noted this was “not significant enough” to back the complaint against PLDT.

Likewise, the court noted that PLDT’s 403,193,776 SIP shareholders would sustain more damage than the petitioners if it granted the petition of the two men who had a total of 360 shares.

“Redemption payments have been made and records have been changed already and undoing the redemption will cause prejudice not only to PLDT but also to numerous stockholders who have complied with the redemption procedure,” it said.

The court also said it could not take up the petitioners’ allegation that the redemption of the shares was meant to mask PLDT’s status as a foreign controlled utility, saying that this should be addressed instead to the SEC.

It said the petitioners did not raise this question in their complaint before the Makati RTC.

“(S)hould petitioners continue to have any doubt as to PLDT’s ownership structure, they should have properly referred their concern to the SEC and not before Us through the instant petition for review,” the court said.