MANILA, Philippines (2nd UPDATE) - Philippine Long Distance Telephone Co. (PLDT) said on Tuesday it will take control of a rival firm as it seeks to solidify its leading position in a mature industry where a price war had eroded margins.
PLDT, the country's top telecommunications firm, said it forged a deal valued at P69.2 billion ($1.6 billion) to acquire 51.55% of third-ranked Digital Telecommunications Philippines Inc. (Digitel).
The deal, which includes a share swap and assumption of debt and advances by Digitel from its parent JG Summit Holdings Inc., was expected to be completed by the end of June, PLDT and Digitel said in a joint statement.
Digitel, via its Sun Cellular brand, had shaken the mobile phone market with cheap call and text packages, prompting PLDT and second-ranked Globe Telecoms to follow suit.
"PLDT is not out to kill the competition, but growth of Globe will be limited," said Jose Mari Lacson, analyst at Campos, Lanuza & Company Inc, noting that PLDT had said it intended to keep Digitel's cheap call and text offerings.
The price war had slowly eroded telecoms' margins in a saturated mobile market, with penetration at around 90% against a population estimated to be nearing 100 million.
PLDT's mobile phone market share would rise to 70% after the deal, Lacson said.
PLDT said the transaction, which involves its acquisition of 3.277 billion Digitel common shares from JG Summit and certain other parties, would result in cost efficiencies and improve network usage.
PLDT has said it would spend more in 2011 and 2012 to grow its broadband business amid stiff competition.
JG Summit would hold about 12% in PLDT after the transaction, while stakes of existing PLDT shareholders would be diluted, PLDT chairman Manuel Pangilinan said.
PLDT will make a mandatory offer to minority investors to buy the rest of Digitel, with shareholders given an option to sell at a discount to market at P1.60 apiece, or swap their holdings for PLDT shares at a premium of P2,500 per share.
"JG Summit is the ultimate winner. They get a good price for an investment that has not really delivered in terms of dividends," Campos & Lanuza's Lacson said.
PLDT closed flat at P2,036 on Tuesday while trading in Digitel was suspended at the firm's request. On Monday, Digitel had surged as much as 29% to a 4-year high before ending at P1.8.
The deal was announced after the market closed.
The tender offer, if fully taken up by shareholders, would bring the total value of the deal to P74.1 billion.
"Though this initiative alters the country's telecom landscape, we expect competition within the industry to remain very robust given that other operators, including new entrants, are formidable and well-funded," Pangilinan said.
PLDT, partly owned by Hong Kong's First Pacific Co. Ltd. and Japan's NTT Communications and NTT DoCoMo, has a market value of $8.9 billion against Digitel's $269 million.
Globe, owned by Ayala Corp. and Singapore Telecommunications, is valued at $2.1 billion.
Under the deal, PLDT will acquire debts of Digitel, including zero-coupon bonds issued to JG Summit convertible into 18.6 billion Digitel shares by June 30. It will also absorb P34.1 billion in advances made by JG Summit and other parties.
PLDT will swap one new PLDT share for every P2,500 worth of Digitel assets to be acquired."The transaction should also bring significant value to JG Summit's shareholders without relinquishing our participation in the Philippine telecommunications industry," James Go, JG Summit chairman, said in the joint statement.