Here’s my saga to protect “myself” and the rest of the minority shareholders of Liberty Telecoms Holdings Inc. (PM:LIB). At least, by public awareness. As you may know, Liberty Telecoms will be delisted from the Philippine Stocks Exchange tentatively on Oct. 31, 2016. Delisting because it has been taken over by the telco cartels, PLDT-Smart and Globe Telecom. Then there’s a tender offer given to the minority shareholders before delisting, offer date from August 24, 2016 – September 15, 2016 3:30 P.M. The offer price is at 2.20 PhP per share. In my opinion, I really don’t agree with the valuation report and “fairness” opinion issued by independent auditor Punongbayan & Araullo, that the the prospective fair value range of P0.08 to P0.33 per common share. It should have been way, way more than 0.33/share.
Anyway, i was privileged enough to get the approval from Lemuel Uy, the Equity Research Analyst of Papa Securities to publish his special report entitled “Screwing Liberty.” I’m thankful for him in replying immediately on my request. You may read his report below.
Liberty Telecoms Holdings, Inc. (LIB)
By: Lemuel Uy, CFA
The most successful investors say that before you buy any stock you have to be familiar with the company’s business. That advice should hold true for all cases, but what if certain material information is
withheld from you, information that if you had knowledge of would affect your decision whether or not to buy a stock?
On Aug. 22, 2016, Liberty Telecoms Holdings, Inc. (LIB) disclosed that its parent company Vega Telecom, Inc. (VTI) is making a tender offer of PhP2.20 per share for up to 166 million common shares owned by the minority shareholders. The offer price is, as described in the disclosure, “magnanimous and more than fair and reasonable” as it is already 6 times the maximum of the fair value range (8 to 33 centavos per share) as calculated by an independent accredited auditor. How is it that a company with control of the much coveted 700 Mhz frequency be valued at such a low price when PLDT and Globe paid SMC a total consideration of PhP69.1bn primarily for that asset? According to the valuation report:
“based on representations made by San Miguel Corporation (previous owner of parent company), the management confirms that all of Tori Spectrum’s frequency allocations have been assigned to BellTel as approved by the National Telecommunications Commission on 17 March 2015. The NTC canceled Tori Spectrum’s Frequency Assignment Sheets (“FAS”) for 723- 738 MHz/778-793 MHz and 2555-2595 MHz frequencies. According to the management, Tori Spectrum had already ceased to be the assignee of the aforementioned frequencies. As such, the value of the frequencies was not considered for purpose of this valuation.”
LIB’s prized possession, the 700 Mhz frequency, had apparently been transferred to the hands of a sister company, BellTel, since March 2015 and it appears LIB did not get even a single centavo in return. For more than a year, the company kept its investors in the dark as to what it owned, or did not; a clear case of misrepresentation.
Just imagine the shock of LIB investors when the realization hits them that each share of the company they own is now worth less than a stick of gum. Why were they kept in the dark? The earliest mention of the frequency reassignment was in the second quarter filing of LIB this year, disclosed on Aug. 15, 2016, just a week before the tender offer details were announced. The material information was not even given the emphasis it deserved; it was quietly inserted in the notes to financial statements, which not many investors read, to be honest.
A market is built on trust. For a financial market to thrive, it is imperative for the participants to maintain the trust of the investing public, and one of the requirements is making timely disclosures. If the investors had known of this information, then the stock should have traded closer to its true value. Investors should not be rewarded with such a large loss of wealth by either the gross negligence of a company, or by their withholding of pertinent information. At the end of the day, San Miguel received the full value of the spectrum, PLDT and GLOBE have the spectrum (subject to PCC approval), and the minority shareholders will receive much less than they deserve.
We actually share the same sentiment, not only, because I’m one of the minority shareholders of LIB, but also, I believe that the authorities (SEC) must protect the investors and maintain the integrity of the securities markets. He also mentioned on his email…
“I believe SEC and PSE are already looking deeper into the matter. The lack of disclosure is a serious matter and might tarnish SEC and PSE’s credibility as well if this goes unsanctioned.”
Here’s a worst-case scenario that I can think of, the minority investors will take the tender offer at 2.20 PhP/share, and the best case is, if we’re lucky enough, the SEC will extend/halt the offer period or the delisting period, the company will get re-evaluated by a different auditor and prosecute those who were involved in the buy out. If the government is keen in upholding their promise to destroy the oligarchs of the Philippines, then they can include this case, “Screwing Liberty” shareholders.
Feel free to leave me a comment on Twitter. Happy trading everyone!