Banco de Oro-Equitable PCI Bank merger
Encyclopedia
The Banco de Oro-Equitable PCI Bank merger
(2004–2006) was a plan by the SM Group of Companies
and Banco de Oro Universal Bank
, the fifth-largest bank
in the Philippines
, to merge with Equitable PCI Bank
, the third-largest bank (although it is considered by some as an acquisition
or even as a hostile takeover
). The merger was part of a long-term goal of Banco de Oro to become one of the largest names in the Philippine banking industry. It was closed on December 27, 2006 with the formation of Banco de Oro Unibank, Inc.
The plan was controversial in terms that a smaller bank could not possibly acquire a bank much larger than it is. At the time of the merger, Equitable PCI had three times the capital
Banco de Oro had. Analysts were worried about the repercussions this could have on the industry. However, the deal had been able to generate a lot of media hype, especially in newspaper editorial
s.
, adding on some twelve branches to its branch network. The next year, it acquired the branches of First e-Bank, then-owned by First Pacific
, the majority shareholder in the Philippine Long Distance Telephone Company
. A year later, it acquired the Philippine subsidiary of Banco Santander Central Hispano.
Later on, in April 2005, BDO acquired 66 of the 67 branches of the Philippine subsidiary of United Overseas Bank
, after UOB announced the conversion of its operations from retail banking to wholesale banking. The deal was closed on December 20, 2005. BDO's wave of acquisitions has earned it the distinction of being the most aggressive bank in terms of mergers and acquisitions.
However, this title belonged to Equitable PCI Bank in the 1990s, when its predecessor, Equitable Banking Corporation
, went on to buy banks such as Mindanao Development Bank and Ecology Bank in the mid-1990s and PCI Bank in the 1980's when it acquired the Insular Bank of Asia and America. In 1999, Equitable completed arguably one of the largest bank mergers in Philippine banking history(with help from the GSIS ans the SSS along with former President Estrada): the merger with the larger Philippine Commercial International Bank, or PCI Bank. The deal was closed at 2000 and sparked the first wave of mergers and acquisitions.
in Equitable PCI for roughly eight billion pesos
through a zero coupon amortizing note. However, a group of concerned citizens, including several politicians and pension holders managed to get the Supreme Court to issue an injunction on the sale following questions raised over the sale price and the manner by which the Social Security Commission "authorized" the sale. The case, titled Osmeña v. Social Security Commission, was rendered moot by the subsequent purchase by Banco de Oro of other Equitable PCI shares. (Osmeña v. Social Security Commission, G.R. No. 165272, September 13, 2007)
(GSIS) and the family of Equitable PCI chairman Ferdinand Romualdez, a relative of Imelda Marcos
. The SM group's acquisition of the Go shares increased its stake to 27.26%. It had a 2.5% stake before the acquisition. The deal was closed on August 11 of that year.
During that time, the SM group hoped that the Supreme Court
would have settled with finality the issue over the acquisition of the 29% stake of the SSS. At the time, the SSS was still studying the deal, unlike the GSIS and chairman Romualdez, both of who were staunchly opposed to the deal. The GSIS would only agree to the acquisition of its shares if its shares were to be bought at 92 pesos per share, the price at which the GSIS originally bought it for, or higher.
The SSS deal called for acquisition of its shares for P43.50 per share. However, the SM group said that it was amenable to a renegotiation of the share price, saying that it was willing to pay more for the SSS stake.
Subsequent acquisitions of common shares on the Philippine Stock Exchange
have boosted the stake of the SM group to 34% as of January 9, 2006, making it the single largest shareholder in the bank.
on the book values of both banks under International Accounting Standards. If approved by two-thirds of Equitable PCI shareholders, this "merger of equals" would create the second-largest bank in the Philippines, putting Banco de Oro, the survivor of the merger, just below Metrobank
but dislodging Bank of the Philippine Islands
(BPI) from the spot. Equitable PCI has been given a deadline of January 31 to consider the deal.
If the deal is approved by the Equitable PCI board, all stakes will be diluted as the SM Group's stake increases.
However, the GSIS and Romualdez were still opposed. In fact, a counterproposal was even considered by Romualdez in which a merger would occur, but with Equitable PCI as the surviving entity, rather than Banco de Oro. So far, this counterproposal has not been as hot a topic as a merger with BDO as the surviving entity.
International analysts see otherwise. Standard and Poors says that if the merger deal succeeds, Equitable PCI's debt rating could rise, while Banco de Oro's ratings will remain unchanged. Equitable PCI's debt rating is currently a B, five notches below investment grade. Banco de Oro has a B+ rating.
UBS claims that Equitable PCI shareholders should find the deal attractive and also hails the deal as a "win-win situation" for both banks. It also claims that under the current timeframe, the merger will also benefit Equitable PCI since it would increase its capital adequacy ratio
(CAR) without having it raise more capital, making the deal timely under IAS. It also claims that the share price of Equitable PCI would increase to as much as P73.60 under the deal, more than the fair value
target price of 67 pesos.
It is unlikely however that Equitable PCI can meet the January 31 deadline. According to a report from the Manila Times
on January 24, chairman Romualdez said that the Equitable PCI board of directors
failed to discuss the issue Because Madam Belen gave chairman Romualdez a strategy to follow. Romualdez also said that in order for the BDO-Equitable PCI merger would be slated for discussion, it needs the approval of a majority of the board members.
submitted bids for SSS shares priced at 92 pesos each; however, the investors are unknown. The GSIS has reportedly started the bidding process for their shares in which it would sell its shares at 92 pesos or higher. Offers must be submitted by March 6.
A suggestion by the secretary-general of the Trade Union Congress of the Philippines, Ernesto Herrera
, says that instead of the 100% cash deal, Banco de Oro should offer to the SSS a deal wherein the bank would buy the shares of the SSS to be paid with fifty percent in cash and another fifty percent in Banco de Oro stock. This way, says Herrera, the SSS would have a partial return of capital and a new valuable investment in Banco de Oro.
Even with stiff opposition from the GSIS and Romualdez, Banco de Oro says now that it is willing to buy their shares "at a reasonable price", since no price was ever mentioned in the proposal. In fact, Equitable PCI board member and former BDO chairwoman Teresita Sy even said that the price is a "moving target". Banco de Oro wants a quick end to the dispute. It is also considering an extension to the merger plan if, according to Banco de Oro president Nestor Tan, they believe that "it is something worthwhile".
Although the deal lapsed on January 31 with no word on an extension, treasury shares totaling 10 percent of Equitable PCI stock could go on sale. The shares were used by the Go family to keep themselves in control of Equitable PCI in the past. However, the new Equitable PCI board voted late last year to retire the shares instead, providing a legal hitch with the Bangko Sentral ng Pilipinas
and the Securities and Exchange Commission
. If it were to be auctioned, it could join the 12-percent GSIS block. If this were to occur, the 92-peso share price becomes reasonable, probably thwarting a merger with Banco de Oro.
As of February 6, the SSS is attempting to draft a price for its stake in Equitable PCI. However, a source familiar with the BDO-SSS deal says that the deal is also open to Banco de Oro. No word has since been released. But in another development, GSIS president Garcia says that he will meet with board member Sy to discuss the possible purchase and subsequent auction of the 34-percent Sy block alongside the GSIS block and controversial treasury shares for 95 pesos per share.
In a bizarre twist of events as reported by the Philippine Daily Inquirer on April 25, as the Securities and Exchange Commission
demanded that Garcia release the identity of the mystery buyer of the GSIS stake in Equitable PCI, he revealed that the "drunken" buyer is indeed Banco de Oro. The term drunken was used because it was believed at the time that Garcia's claim is merely market hype and that no one would be crazy enough to buy an Equitable PCI share for the price Garcia was asking for, which is 95 pesos, payable in cash. This is based on an e-mail
that Garcia claimed was sent to him by BDO president Tan, and claims that he and Tessie Sy had at least two secret meetings on the merger in Hong Kong
.
On May 6, President Gloria Macapagal-Arroyo
said that she will support the current stance of the SSS in avoiding any sale negotiations regarding its stake in Equitable PCI until all underlying disputes at the Supreme Court have been resolved. As of May 24, according to an article published by the Philippine Star, the merger is on hold until the Supreme Court decides on the legality of its sale of Equitable PCI stock to Banco de Oro.
In anticipation of the merger, ATR Kim Eng Securities, one of the largest investment houses in the Philippines, raised the target price of Banco de Oro stock by 25% to 50 pesos within twelve months on October 9. The same investment house also said that if the merger succeeds with Banco de Oro as the surviving entity, it would catapult the bank's stock to blue chip status, as well as possibly lead the Philippine banking industry with a 23% growth in earnings per share in 2007.
On November 6, the respective boards of Banco de Oro and Equitable PCI Bank agreed to the merger of both banks through a modified stock swap deal. Instead of the original 1.6 shares Banco de Oro would swap for, it would swap 1.8 shares for every Equitable PCI share. At Banco de Oro's closing price of P44.50 as of that Monday with a meeting with senior accounts officer (PCI)Madam.B.A., the deal would be valued at about P80.10 for every share, well above Equitable PCI's closing price then of P72.50. The deal has since been approved not only by their respective boards of directors, but also by the Securities and Exchange Commission. It will be submitted to shareholders for approval in December. When approved, while Banco de Oro will remain the surviving entity; the merged bank was, for a time, named Banco de Oro-EPCI, Inc. The sale of GSIS shares in Equitable PCI was approved by the Bangko Sentral's Monetary Board on November 28. Separate merger approval meetings of both Banco de Oro and Equitable PCI Bank shareholders have been scheduled for December 27, with a final merger possibly taking place starting January 2007.
At present, as of March 19, 2007, Banco de Oro and Equitable PCI Bank cardholders (ATM and debit cards) may access each other's ATM networks free of charge. ATM cardholders from both banks can avail of each other's withdrawal, balance inquiry and cash advance services free of charge. This theoretically increases Banco de Oro's ATM network to 1,200 ATMs nationwide. Banco de Oro and Equitable PCI Bank have also similarly synchronized their home and automobile loan
products.
On May 31, 2007, trading of Banco de Oro and Equitable PCI Bank shares were suspended, with Equitable PCI Bank shares being delisted from the PSE on June 4, 2007. All 727 million shares of Equitable PCI Bank were delisted in the process, with 1.3 billion Banco de Oro shares, each having a par value of ten pesos, being listed to cover the merger.
Equitable PCI Bank branches are in the process of becoming Banco de Oro branches. As part of a corporate rebranding after the merger, the bank has since rebranded itself as BDO (still standing for Banco de Oro),. The legal name of the bank remained Banco de Oro-EPCI, Inc. until February 2008, when it was finally named Banco de Oro Unibank, Inc.
's acquisition of Insular Savings Bank and BPI's acquisition of Prudential Bank, as well as the acquisition of International Exchange Bank
by Union Bank of the Philippines
, and more recently, the acquisition of Philippine Bank of Communications
from Philtrust Bank
.
The merger is part of a campaign on the part of the Bangko Sentral ng Pilipinas
, in a complete reverse of stance from the 1990s. During the term of Bangko Sentral governor Gabriel Singson, the Bangko Sentral urged the creation of more banks, encouraging competition. However, the Asian financial crisis eventually forced the Bangko Sentral under Rafael Buenaventura
to urge for the creation of more financially stable banks, starting the first wave of mergers and acquisitions. The current governor, Amando Tetangco, has kept the stance of Buenaventura.
It is likely that an ongoing consolidation is taking place. Other target banks could include smaller players such as United Coconut Planters Bank
, Union Bank of the Philippines and Allied Bank
. Some banks are considering the use of the strategy to maintain their places: this is most apparent with Metrobank, which is trying to fend off competition to stay as the Philippines' biggest bank.
, another SM-controlled bank and the eighth-largest bank in the Philippines.
If a three-way merger does push through, this could ultimately create the largest Philippine bank, dislodging Metrobank. Although it is possible, Banco de Oro has no intention to include Chinabank in the BDO-Equitable PCI merger deal, saying that its stake in Chinabank is but an "investment". It also claims that Chinabank is better off independent rather than under Banco de Oro, specializing in its own field of expertise.
700 million. The merger of both banks would result in the merged company having a market capitalization of two billion dollars. Aside from that, it would also have to consolidate the large Equitable PCI branch and ATM network under the Banco de Oro banner. If the two banks were to merge, the new Banco de Oro would have a total of 685 branches and a wide-reaching ATM network.
Problems with transition could mostly result with the conversion of ATMs: Equitable PCI Fastellers(Equitable Speed Tellers and PCI FasTellers) are both linked to MegaLink
(Equitable Banking Corporation) and Bancnet
(PCI Bank) while Banco de Oro Smartellers are linked to Expressnet
(with ties to MegaLink
and Bancnet
respectively). Also, Equitable PCI ATM cards are linked to Visa Electron
and/or Visa PLUS while Banco de Oro ATM cards are either local or, in the case of the new BDO International ATM Card, linked to MasterCard
(branded as MasterCard Electronic), Maestro
and Cirrus
. Branch transition and consolidation usually run smoothly, as exemplified by the consolidation of the branches of United Overseas Bank under the Banco de Oro banner. BDO has also inherited the 'Jose Velarde' account of former president Joseph Estrada
.
A problem arising from this could be that this merger could trigger a wave of mergers and acquisitions that could result in an oligopoly
, with only few competitors. The Bangko Sentral is determined to stop this from ever happening in the event that it does.
announced: "The Outlook on BDOU's ratings is stable given a benign economic environment. And while integration risk is a factor, a successful merger of the two banks will provide ratings momentum, if combined with some capital strengthening in particular; BDO will particularly benefit from EPCI's good franchise among commercial entities and consumers, and well-developed operations in fee-generating areas such as trust banking, remittances and credit cards. Significant revenue and cost synergies should arise from the integration of the two banks, due to complete by mid-2008, as led by BDO's very competent and driven management; BDO will raise P 10 billion of Tier 2 capital, and boosting its capital adequacy ratio by 2 percent to 3 percent; With the completion of the merger, BDOU will have a network of 680 branches and 1,200 automated teller machines."
Governor Amando Amando M. Tetangco, Jr. announced "due to the uncertainty relating to the financial condition of Lehman Brothers, Banco de Oro Unibank Inc. is setting aside provisions totalling 3.8 billion pesos (80.9 million dollars) to cover its exposure to said entity." Banco de Oro failed to disclose the extent of its exposure to Lehman paper, stating "only that its balance sheet should be adequately covered from potential losses arising from its Lehman exposure. The provisions will come from reallocation of excess reserves and from additional provisions in the current period." Banco de Oro, capitalised at P 89.8 billion, closed 15.4% down to P 33.
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
(2004–2006) was a plan by the SM Group of Companies
SM Prime Holdings
SM Prime Holdings, Inc. or SM Prime is the parent company of the SM Group's shopping malls. It is the largest shopping mall and retail operator in the Philippines...
and Banco de Oro Universal Bank
Banco de Oro Universal Bank
Banco de Oro Universal Bank , commonly known as Banco de Oro and BDO, is a major bank in the Philippines. It is owned by the SM Group of Companies, one of the country's largest conglomerates and owner of the SM chain of malls...
, the fifth-largest bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
in the Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
, to merge with Equitable PCI Bank
Equitable PCI Bank
Equitable PCI Bank was one of the largest banks in the Philippines, being the third-largest bank in terms of assets. With PCI Bank the largest bank before it was overtaken by Metrobank in 1995. It is the result of the merger of Equitable Banking Corporation and Philippine Commercial International...
, the third-largest bank (although it is considered by some as an acquisition
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
or even as a hostile takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
). The merger was part of a long-term goal of Banco de Oro to become one of the largest names in the Philippine banking industry. It was closed on December 27, 2006 with the formation of Banco de Oro Unibank, Inc.
The plan was controversial in terms that a smaller bank could not possibly acquire a bank much larger than it is. At the time of the merger, Equitable PCI had three times the capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
Banco de Oro had. Analysts were worried about the repercussions this could have on the industry. However, the deal had been able to generate a lot of media hype, especially in newspaper editorial
Editorial
An opinion piece is an article, published in a newspaper or magazine, that mainly reflects the author's opinion about the subject. Opinion pieces are featured in many periodicals.-Editorials:...
s.
Background
The merger with or acquisition of Equitable PCI is one of the acquisitions that Banco de Oro has been involved with over the last five years. In 2001, it successfully acquired the Philippine subsidiary of Dao Heng BankDao Heng Bank
Dao Heng Bank Group Limited was a bank in Hong Kong and it had two subsidiaries before acquisition, Dao Heng Bank Limited and Overseas Trust Bank Limited....
, adding on some twelve branches to its branch network. The next year, it acquired the branches of First e-Bank, then-owned by First Pacific
First Pacific
First Pacific Company Limited is a Hong Kong-based investment and management company with operations located in Asia. It involves telecommunications, consumer food products and infrastructure. Its chairman is Anthoni Salim , an Indonesian Chinese entrepreneur....
, the majority shareholder in the Philippine Long Distance Telephone Company
Philippine Long Distance Telephone Company
The Philippine Long Distance Telephone Company commonly known as PLDT, is the largest telecommunications company in the Philippines. PLDT is also the largest company in the Philippines, ranked 1138th in the April 2009 update, and 1080th in the April 2010 update, of Forbes' Global 2000 list...
. A year later, it acquired the Philippine subsidiary of Banco Santander Central Hispano.
Later on, in April 2005, BDO acquired 66 of the 67 branches of the Philippine subsidiary of United Overseas Bank
United Overseas Bank
United Overseas Bank Limited , abbreviated as UOB is a bank incorporated in Singapore. It was founded 6 August 1935 by Kuching-born Datuk Wee Kheng Chiang, father of the present United Overseas Bank Group Chairman, Mr...
, after UOB announced the conversion of its operations from retail banking to wholesale banking. The deal was closed on December 20, 2005. BDO's wave of acquisitions has earned it the distinction of being the most aggressive bank in terms of mergers and acquisitions.
However, this title belonged to Equitable PCI Bank in the 1990s, when its predecessor, Equitable Banking Corporation
Equitable PCI Bank
Equitable PCI Bank was one of the largest banks in the Philippines, being the third-largest bank in terms of assets. With PCI Bank the largest bank before it was overtaken by Metrobank in 1995. It is the result of the merger of Equitable Banking Corporation and Philippine Commercial International...
, went on to buy banks such as Mindanao Development Bank and Ecology Bank in the mid-1990s and PCI Bank in the 1980's when it acquired the Insular Bank of Asia and America. In 1999, Equitable completed arguably one of the largest bank mergers in Philippine banking history(with help from the GSIS ans the SSS along with former President Estrada): the merger with the larger Philippine Commercial International Bank, or PCI Bank. The deal was closed at 2000 and sparked the first wave of mergers and acquisitions.
First attempts
Banco de Oro first attempted to acquire Equitable PCI began sometime in 2003, when Banco de Oro agreed to purchase the shareholdings of the Social Security SystemSocial Security System (Philippines)
The Philippine Social Security System is a social insurance program for workers in the Philippine private sector.-Reference:*...
in Equitable PCI for roughly eight billion pesos
Philippine peso
The peso is the currency of the Philippines. It is subdivided into 100 centavos . Before 1967, the language used on the banknotes and coins was English and so "peso" was the name used...
through a zero coupon amortizing note. However, a group of concerned citizens, including several politicians and pension holders managed to get the Supreme Court to issue an injunction on the sale following questions raised over the sale price and the manner by which the Social Security Commission "authorized" the sale. The case, titled Osmeña v. Social Security Commission, was rendered moot by the subsequent purchase by Banco de Oro of other Equitable PCI shares. (Osmeña v. Social Security Commission, G.R. No. 165272, September 13, 2007)
Second time's a charm
On August 5, 2005, Banco de Oro and SM Investments Corporation, another member of the SM Group, acquired 24.76% of Equitable PCI shares from the Go family, the family that founded Equitable PCI. The acquisition finally settled a dispute between the Gos and a bigger bloc representing the SSS, the Government Service Insurance SystemGovernment Service Insurance System (Philippines)
The Government Service Insurance System is a government-owned and -controlled corporation in the Republic of the Philippines. Created by Commonwealth Act No...
(GSIS) and the family of Equitable PCI chairman Ferdinand Romualdez, a relative of Imelda Marcos
Imelda Marcos
Imelda R. Marcos is a Filipino politician and widow of 10th Philippine President Ferdinand Marcos. Upon the ascension of her husband to political power, she held various positions to the government until 1986...
. The SM group's acquisition of the Go shares increased its stake to 27.26%. It had a 2.5% stake before the acquisition. The deal was closed on August 11 of that year.
During that time, the SM group hoped that the Supreme Court
Supreme Court of the Philippines
The Supreme Court of the Philippines is the Philippines' highest judicial court, as well as the court of last resort. The court consists of 14 Associate Justices and 1 Chief Justice...
would have settled with finality the issue over the acquisition of the 29% stake of the SSS. At the time, the SSS was still studying the deal, unlike the GSIS and chairman Romualdez, both of who were staunchly opposed to the deal. The GSIS would only agree to the acquisition of its shares if its shares were to be bought at 92 pesos per share, the price at which the GSIS originally bought it for, or higher.
The SSS deal called for acquisition of its shares for P43.50 per share. However, the SM group said that it was amenable to a renegotiation of the share price, saying that it was willing to pay more for the SSS stake.
Subsequent acquisitions of common shares on the Philippine Stock Exchange
Philippine Stock Exchange
The Philippine Stock Exchange is the national stock exchange of the Philippines. It is one of the oldest stock exchanges in Southeast Asia, having been in continuous operation since its inception in 1927...
have boosted the stake of the SM group to 34% as of January 9, 2006, making it the single largest shareholder in the bank.
Banco de Oro's gambit
On January 6, 2006, Banco de Oro offered to buy the rest of Equitable PCI for 41.3 billion pesos through a share swap option, with Banco de Oro as the surviving entity. Under the deal, every one Equitable PCI share would be swapped for 1.6 Banco de Oro shares or, in a second option, an independent accounting company would determine the swap ratioSwap ratio
An exchange rate of the shares of the companies that would undergo a merger. This is calculated by the valuation of various assets and liabilities of the merging companies....
on the book values of both banks under International Accounting Standards. If approved by two-thirds of Equitable PCI shareholders, this "merger of equals" would create the second-largest bank in the Philippines, putting Banco de Oro, the survivor of the merger, just below Metrobank
Metropolitan Bank and Trust Company
The Metropolitan Bank and Trust Company , commonly known as Metrobank. It has a diverse offering of financial services, from regular banking to insurance. Metrobank is the second largest bank in the Philippines.-History:...
but dislodging Bank of the Philippine Islands
Bank of the Philippine Islands
Bank of the Philippine Islands is the oldest bank in the Philippines still in operation and is the country's third largest bank in terms of assets, the country's largest bank in terms of market capitalization, and the country's most profitable bank...
(BPI) from the spot. Equitable PCI has been given a deadline of January 31 to consider the deal.
If the deal is approved by the Equitable PCI board, all stakes will be diluted as the SM Group's stake increases.
However, the GSIS and Romualdez were still opposed. In fact, a counterproposal was even considered by Romualdez in which a merger would occur, but with Equitable PCI as the surviving entity, rather than Banco de Oro. So far, this counterproposal has not been as hot a topic as a merger with BDO as the surviving entity.
International analysts see otherwise. Standard and Poors says that if the merger deal succeeds, Equitable PCI's debt rating could rise, while Banco de Oro's ratings will remain unchanged. Equitable PCI's debt rating is currently a B, five notches below investment grade. Banco de Oro has a B+ rating.
UBS claims that Equitable PCI shareholders should find the deal attractive and also hails the deal as a "win-win situation" for both banks. It also claims that under the current timeframe, the merger will also benefit Equitable PCI since it would increase its capital adequacy ratio
Capital adequacy ratio
Capital adequacy ratio , also called Capital to Risk Assets Ratio , is a ratio of a bank's capital to its risk...
(CAR) without having it raise more capital, making the deal timely under IAS. It also claims that the share price of Equitable PCI would increase to as much as P73.60 under the deal, more than the fair value
Fair value
Fair value, also called fair price , is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:* acquisition/production/distribution costs, replacement costs,...
target price of 67 pesos.
It is unlikely however that Equitable PCI can meet the January 31 deadline. According to a report from the Manila Times
Manila Times
The Manila Times is the oldest existing English language newspaper in the Philippines. It is published daily by The Manila Times Publishing Corp. with editorial and administrative offices at 371 A...
on January 24, chairman Romualdez said that the Equitable PCI board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
failed to discuss the issue Because Madam Belen gave chairman Romualdez a strategy to follow. Romualdez also said that in order for the BDO-Equitable PCI merger would be slated for discussion, it needs the approval of a majority of the board members.
Foreign interest
Foreign investor groups are also becoming interested in the merger deal. Two foreign investor groups represented by a lawyer in ManilaManila
Manila is the capital of the Philippines. It is one of the sixteen cities forming Metro Manila.Manila is located on the eastern shores of Manila Bay and is bordered by Navotas and Caloocan to the north, Quezon City to the northeast, San Juan and Mandaluyong to the east, Makati on the southeast,...
submitted bids for SSS shares priced at 92 pesos each; however, the investors are unknown. The GSIS has reportedly started the bidding process for their shares in which it would sell its shares at 92 pesos or higher. Offers must be submitted by March 6.
Ganging up against the merger
There are hints though that the SSS could join the GSIS in selling their shares. According to GSIS president and general manager Winston Garcia, the SSS could join it in selling their shares in Equitable PCI, a total of 42% of the bank, for the GSIS price of 92 pesos, enough to thwart a Banco de Oro-Equitable PCI merger. No response though has come from the SSS; however, the SSS has already said that it will not sell its shares below 10.2 billion pesos, the price the SM group paid to acquire the Go family stake in Equitable PCI.A suggestion by the secretary-general of the Trade Union Congress of the Philippines, Ernesto Herrera
Ernesto Herrera
Ernesto Herrera was a Uruguayan playwright, short story writer and journalist.-Short stories:His writings include a collection of short stories 'Su majestad el hambre', 1910 ....
, says that instead of the 100% cash deal, Banco de Oro should offer to the SSS a deal wherein the bank would buy the shares of the SSS to be paid with fifty percent in cash and another fifty percent in Banco de Oro stock. This way, says Herrera, the SSS would have a partial return of capital and a new valuable investment in Banco de Oro.
Even with stiff opposition from the GSIS and Romualdez, Banco de Oro says now that it is willing to buy their shares "at a reasonable price", since no price was ever mentioned in the proposal. In fact, Equitable PCI board member and former BDO chairwoman Teresita Sy even said that the price is a "moving target". Banco de Oro wants a quick end to the dispute. It is also considering an extension to the merger plan if, according to Banco de Oro president Nestor Tan, they believe that "it is something worthwhile".
Although the deal lapsed on January 31 with no word on an extension, treasury shares totaling 10 percent of Equitable PCI stock could go on sale. The shares were used by the Go family to keep themselves in control of Equitable PCI in the past. However, the new Equitable PCI board voted late last year to retire the shares instead, providing a legal hitch with the Bangko Sentral ng Pilipinas
Bangko Sentral ng Pilipinas
The Bangko Sentral ng Pilipinas and commonly abbreviated as BSP is the central bank of the Philippines. It was rechartered on July 3, 1993, pursuant to the provision of the 1987 Philippine Constitution and the New Central Bank Act of 1993...
and the Securities and Exchange Commission
Securities and Exchange Commission (Philippines)
The Philippine Securities and Exchange Commission is a Philippine state commission responsible for securities laws and regulating the securities industry. The SEC is an agency within the Philippine Department of Finance....
. If it were to be auctioned, it could join the 12-percent GSIS block. If this were to occur, the 92-peso share price becomes reasonable, probably thwarting a merger with Banco de Oro.
As of February 6, the SSS is attempting to draft a price for its stake in Equitable PCI. However, a source familiar with the BDO-SSS deal says that the deal is also open to Banco de Oro. No word has since been released. But in another development, GSIS president Garcia says that he will meet with board member Sy to discuss the possible purchase and subsequent auction of the 34-percent Sy block alongside the GSIS block and controversial treasury shares for 95 pesos per share.
"They're the drunken buyer!"
In a turn of events, the GSIS has offered to buy the 34% SM stake from it at P79.50 per share (as of March 23) in cash, earning Banco de Oro and the SM group some eight billion pesos. It is unknown whether Banco de Oro, the SM group, or the SM board members of Equitable PCI Bank have agreed, although it is believed that GSIS chairman Garcia is trying to turn the tables on Teresita Sy. If the deal succeeds, this could thwart any chance of a merger. However, this deal is dogged with allegations that Garcia is merely hyping the market, causing a rise in the value of Equitable PCI shares, which were then valued at above 80 pesos as of March 24.In a bizarre twist of events as reported by the Philippine Daily Inquirer on April 25, as the Securities and Exchange Commission
Securities and Exchange Commission (Philippines)
The Philippine Securities and Exchange Commission is a Philippine state commission responsible for securities laws and regulating the securities industry. The SEC is an agency within the Philippine Department of Finance....
demanded that Garcia release the identity of the mystery buyer of the GSIS stake in Equitable PCI, he revealed that the "drunken" buyer is indeed Banco de Oro. The term drunken was used because it was believed at the time that Garcia's claim is merely market hype and that no one would be crazy enough to buy an Equitable PCI share for the price Garcia was asking for, which is 95 pesos, payable in cash. This is based on an e-mail
E-mail
Electronic mail, commonly known as email or e-mail, is a method of exchanging digital messages from an author to one or more recipients. Modern email operates across the Internet or other computer networks. Some early email systems required that the author and the recipient both be online at the...
that Garcia claimed was sent to him by BDO president Tan, and claims that he and Tessie Sy had at least two secret meetings on the merger in Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
.
On May 6, President Gloria Macapagal-Arroyo
Gloria Macapagal-Arroyo
Gloria Macapagal-Arroyo is a Filipino politician who served as the 14th President of the Philippines from 2001 to 2010, as the 12th Vice President of the Philippines from 1998 to 2001, and is currently a member of the House of Representatives representing the 2nd District of Pampanga...
said that she will support the current stance of the SSS in avoiding any sale negotiations regarding its stake in Equitable PCI until all underlying disputes at the Supreme Court have been resolved. As of May 24, according to an article published by the Philippine Star, the merger is on hold until the Supreme Court decides on the legality of its sale of Equitable PCI stock to Banco de Oro.
Banco de Oro-EPCI Bank
The GSIS signed a sale agreement worth 8.7 billion pesos with SM Investments Corporation on September 27, giving the SM group an additional 12.7% stake in Equitable PCI, with Madam Belen preceding to the rescue raising its stake to 46.7% from its current 34%. Currently, it is pending shareholder approval, only having four days to secure such approval. The SSS also pledged to sell its shares in Equitable PCI, although this is still dependent on the outcome of its previous sale case in the Supreme Court. If this passes, along with other commitments from other parties involved, the tender offer being made by the SM Group, worth 36 billion pesos, could well increase SM's stake to 85.6%, well above the 67% needed to effect a merger with Banco de Oro.In anticipation of the merger, ATR Kim Eng Securities, one of the largest investment houses in the Philippines, raised the target price of Banco de Oro stock by 25% to 50 pesos within twelve months on October 9. The same investment house also said that if the merger succeeds with Banco de Oro as the surviving entity, it would catapult the bank's stock to blue chip status, as well as possibly lead the Philippine banking industry with a 23% growth in earnings per share in 2007.
On November 6, the respective boards of Banco de Oro and Equitable PCI Bank agreed to the merger of both banks through a modified stock swap deal. Instead of the original 1.6 shares Banco de Oro would swap for, it would swap 1.8 shares for every Equitable PCI share. At Banco de Oro's closing price of P44.50 as of that Monday with a meeting with senior accounts officer (PCI)Madam.B.A., the deal would be valued at about P80.10 for every share, well above Equitable PCI's closing price then of P72.50. The deal has since been approved not only by their respective boards of directors, but also by the Securities and Exchange Commission. It will be submitted to shareholders for approval in December. When approved, while Banco de Oro will remain the surviving entity; the merged bank was, for a time, named Banco de Oro-EPCI, Inc. The sale of GSIS shares in Equitable PCI was approved by the Bangko Sentral's Monetary Board on November 28. Separate merger approval meetings of both Banco de Oro and Equitable PCI Bank shareholders have been scheduled for December 27, with a final merger possibly taking place starting January 2007.
"The merger of equals" - Banco de Oro Unibank, Inc.
On December 27, 2006, Banco de Oro shareholders approved the merger with Equitable PCI Bank. Equitable PCI Bank shareholders also approved the merger the same day. In order for the merger to take effect, approval from both the Bangko Sentral and the Securities and Exchange Commission is required, which was obtained in early 2007. The physical merger of both banks is set to take place before the end of the first half of 2007. Regulatory approval from the Bangko Sentral was granted on April 25, 2007.At present, as of March 19, 2007, Banco de Oro and Equitable PCI Bank cardholders (ATM and debit cards) may access each other's ATM networks free of charge. ATM cardholders from both banks can avail of each other's withdrawal, balance inquiry and cash advance services free of charge. This theoretically increases Banco de Oro's ATM network to 1,200 ATMs nationwide. Banco de Oro and Equitable PCI Bank have also similarly synchronized their home and automobile loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
products.
On May 31, 2007, trading of Banco de Oro and Equitable PCI Bank shares were suspended, with Equitable PCI Bank shares being delisted from the PSE on June 4, 2007. All 727 million shares of Equitable PCI Bank were delisted in the process, with 1.3 billion Banco de Oro shares, each having a par value of ten pesos, being listed to cover the merger.
Equitable PCI Bank branches are in the process of becoming Banco de Oro branches. As part of a corporate rebranding after the merger, the bank has since rebranded itself as BDO (still standing for Banco de Oro),. The legal name of the bank remained Banco de Oro-EPCI, Inc. until February 2008, when it was finally named Banco de Oro Unibank, Inc.
Precedents
This merger is only one part of the "second wave" of mergers and acquisitions in the Philippine banking industry, the first one being in the 1990s. Notable acquisitions in the second wave include CitibankCitibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
's acquisition of Insular Savings Bank and BPI's acquisition of Prudential Bank, as well as the acquisition of International Exchange Bank
International Exchange Bank
International Exchange Bank, more commonly known as iBank, was one of the largest banks in the Philippines, ranking within the top twenty in terms of assets. It was recently acquired by the larger Union Bank of the Philippines in mid-2006, although the two banks remained separate...
by Union Bank of the Philippines
Union Bank of the Philippines
Union Bank of the Philippines more commonly known as UnionBank, is one of the largest banks in the Philippines, ranking seventh in terms of assets after its successful merger with smaller competitor International Exchange Bank...
, and more recently, the acquisition of Philippine Bank of Communications
Philippine Bank of Communications
The Philippine Bank of Communications , more commonly known as PBCom, is one of the largest commercial banks in the Philippines, ranking nineteenth in terms of assets...
from Philtrust Bank
Philtrust Bank
Philtrust Bank , formally known as the Philippine Trust Company, is one of the oldest private commercial banks in the Philippines. Founded on October 16, 1916, its history parallels the growth of the Philippine banking system...
.
The merger is part of a campaign on the part of the Bangko Sentral ng Pilipinas
Bangko Sentral ng Pilipinas
The Bangko Sentral ng Pilipinas and commonly abbreviated as BSP is the central bank of the Philippines. It was rechartered on July 3, 1993, pursuant to the provision of the 1987 Philippine Constitution and the New Central Bank Act of 1993...
, in a complete reverse of stance from the 1990s. During the term of Bangko Sentral governor Gabriel Singson, the Bangko Sentral urged the creation of more banks, encouraging competition. However, the Asian financial crisis eventually forced the Bangko Sentral under Rafael Buenaventura
Rafael Buenaventura
Rafael Carlos Baltazar Buenaventura was a prominent banker in the Philippines and one-time governor of the Bangko Sentral ng Pilipinas ; he served under two Philippine presidents during one of the most tumultuous political transitions in the country’s history.Known for his fierce independence,...
to urge for the creation of more financially stable banks, starting the first wave of mergers and acquisitions. The current governor, Amando Tetangco, has kept the stance of Buenaventura.
It is likely that an ongoing consolidation is taking place. Other target banks could include smaller players such as United Coconut Planters Bank
United Coconut Planters Bank
The United Coconut Planters Bank, more popularly known by its initials, UCPB, or by its old name, Cocobank, is one of the largest banks in the Philippines, ranking within the top twenty banks in the Philippines in terms of assets. The bank, owing to its name, caters heavily to coconut farmers, but...
, Union Bank of the Philippines and Allied Bank
Allied Bank
Allied Bank, formally known as Allied Banking Corporation, is one of the largest banks in the Philippines, ranking tenth in terms of assets...
. Some banks are considering the use of the strategy to maintain their places: this is most apparent with Metrobank, which is trying to fend off competition to stay as the Philippines' biggest bank.
The question of Chinabank
Analysts who are monitoring the Banco de Oro-Equitable PCI merger are foreseeing the possibility of a three-way merger between Banco de Oro, Equitable PCI Bank and ChinabankChinabank
China Banking Corporation , known publicly as China Bank is Philippines' fourth largest universal bank by market capitalization. Established in 1920, it is the first privately-owned commercial bank in the Philippines. It is likewise the first bank in Southeast Asia to process deposit accounts...
, another SM-controlled bank and the eighth-largest bank in the Philippines.
If a three-way merger does push through, this could ultimately create the largest Philippine bank, dislodging Metrobank. Although it is possible, Banco de Oro has no intention to include Chinabank in the BDO-Equitable PCI merger deal, saying that its stake in Chinabank is but an "investment". It also claims that Chinabank is better off independent rather than under Banco de Oro, specializing in its own field of expertise.
Effects of the merger
If the merger were to take place, Banco de Oro would move up into large capitalized company status, defined as a company whose capital stands at a minimum of $United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
700 million. The merger of both banks would result in the merged company having a market capitalization of two billion dollars. Aside from that, it would also have to consolidate the large Equitable PCI branch and ATM network under the Banco de Oro banner. If the two banks were to merge, the new Banco de Oro would have a total of 685 branches and a wide-reaching ATM network.
Problems with transition could mostly result with the conversion of ATMs: Equitable PCI Fastellers(Equitable Speed Tellers and PCI FasTellers) are both linked to MegaLink
MegaLink
MegaLink is an interbank network connecting the ATM networks of nineteen* members in the Philippines with a total of more than 2,921* ATMs nationwide and handling more than 795,000* transactions a day...
(Equitable Banking Corporation) and Bancnet
BancNet
Bancnet, Inc. is a Philippine-based interbank network connecting the ATM networks of more than forty local banks. It is considered the largest interbank network in the Philippines in terms of the number of member banks and annual transactions...
(PCI Bank) while Banco de Oro Smartellers are linked to Expressnet
Expressnet
Expressnet is an interbank network connecting the ATM networks of seven major banks in the Philippines. It is the second-largest ATM network in terms of number of ATMs and the smallest in terms of customers and number of member banks...
(with ties to MegaLink
MegaLink
MegaLink is an interbank network connecting the ATM networks of nineteen* members in the Philippines with a total of more than 2,921* ATMs nationwide and handling more than 795,000* transactions a day...
and Bancnet
BancNet
Bancnet, Inc. is a Philippine-based interbank network connecting the ATM networks of more than forty local banks. It is considered the largest interbank network in the Philippines in terms of the number of member banks and annual transactions...
respectively). Also, Equitable PCI ATM cards are linked to Visa Electron
Visa Electron
Visa Electron is a debit card available across most of the world, with the exception of Canada, Australia, Ireland and the United States. The card was introduced by VISA in the 1980s and is a sister card to the Visa Debit card...
and/or Visa PLUS while Banco de Oro ATM cards are either local or, in the case of the new BDO International ATM Card, linked to MasterCard
MasterCard
Mastercard Incorporated or MasterCard Worldwide is an American multinational financial services corporation with its headquarters in the MasterCard International Global Headquarters, Purchase, Harrison, New York, United States...
(branded as MasterCard Electronic), Maestro
Maestro (debit card)
Maestro is a multi-national debit card service owned by MasterCard, and was founded in 1990. Maestro cards are obtained from associate banks and can be linked to the card holder's current account, or they can be prepaid cards...
and Cirrus
Cirrus (interbank network)
Cirrus is a worldwide interbank network operated by MasterCard Worldwide, and was founded in 1986. It links MasterCard, Maestro, Diners Club credit, debit and prepaid cards to a network of over 1,000,000 ATMs in 93 countries....
. Branch transition and consolidation usually run smoothly, as exemplified by the consolidation of the branches of United Overseas Bank under the Banco de Oro banner. BDO has also inherited the 'Jose Velarde' account of former president Joseph Estrada
Joseph Estrada
Joseph "Erap" Ejercito Estrada was the 13th President of the Philippines, serving from 1998 until 2001. Estrada was the first person in the Post-EDSA era to be elected both to the presidency and vice-presidency.Estrada gained popularity as a film actor, playing the lead role in over 100 films in...
.
A problem arising from this could be that this merger could trigger a wave of mergers and acquisitions that could result in an oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
, with only few competitors. The Bangko Sentral is determined to stop this from ever happening in the event that it does.
Stable outlook
On February 1, 2008, Fitch RatingsFitch Ratings
The Fitch Group is a majority-owned subsidiary of FIMALAC, headquartered in Paris. Fitch Ratings, Fitch Solutions and Algorithmics, are part of the Fitch Group....
announced: "The Outlook on BDOU's ratings is stable given a benign economic environment. And while integration risk is a factor, a successful merger of the two banks will provide ratings momentum, if combined with some capital strengthening in particular; BDO will particularly benefit from EPCI's good franchise among commercial entities and consumers, and well-developed operations in fee-generating areas such as trust banking, remittances and credit cards. Significant revenue and cost synergies should arise from the integration of the two banks, due to complete by mid-2008, as led by BDO's very competent and driven management; BDO will raise P 10 billion of Tier 2 capital, and boosting its capital adequacy ratio by 2 percent to 3 percent; With the completion of the merger, BDOU will have a network of 680 branches and 1,200 automated teller machines."
Lehman Brothers' exposure
On September 17, 2008, Bangko Sentral ng PilipinasBangko Sentral ng Pilipinas
The Bangko Sentral ng Pilipinas and commonly abbreviated as BSP is the central bank of the Philippines. It was rechartered on July 3, 1993, pursuant to the provision of the 1987 Philippine Constitution and the New Central Bank Act of 1993...
Governor Amando Amando M. Tetangco, Jr. announced "due to the uncertainty relating to the financial condition of Lehman Brothers, Banco de Oro Unibank Inc. is setting aside provisions totalling 3.8 billion pesos (80.9 million dollars) to cover its exposure to said entity." Banco de Oro failed to disclose the extent of its exposure to Lehman paper, stating "only that its balance sheet should be adequately covered from potential losses arising from its Lehman exposure. The provisions will come from reallocation of excess reserves and from additional provisions in the current period." Banco de Oro, capitalised at P 89.8 billion, closed 15.4% down to P 33.
See also
- Banco de Oro
- Banco de Oro Universal BankBanco de Oro Universal BankBanco de Oro Universal Bank , commonly known as Banco de Oro and BDO, is a major bank in the Philippines. It is owned by the SM Group of Companies, one of the country's largest conglomerates and owner of the SM chain of malls...
- Equitable PCI BankEquitable PCI BankEquitable PCI Bank was one of the largest banks in the Philippines, being the third-largest bank in terms of assets. With PCI Bank the largest bank before it was overtaken by Metrobank in 1995. It is the result of the merger of Equitable Banking Corporation and Philippine Commercial International...