Eyal Shram is a US-based private investor and fund manager who is invested in both PLDT and First Pacific. Last week we published a letter detailing his concerns about the way PLDT was behaving in the recent dispute between its board, and that of First Pacific, over the latter's wish to sell its stake to John Gokongwei. PLDT wrote a detailed response, which we published on Friday. Here Shram writes back with a final riposte. (Both the previous letters can be read if you click on the related articles section at the bottom of this article.)
Dear PLDT Management:
I'd like to express my sincere appreciation to PLDT management for their responsiveness to their shareholders' concerns. I also would like to thank them for taking the time to clarify certain misconceptions and inaccuracies mentioned in the original open letter to Mr. Pangilinan. You have to understand that my opinion is only as good as the public information available to shareholders. Minority shareholders are typically not privy to intricate details of relevant agreements that are not meant for public consumption.
While I have no intentions of engaging in a written public debate with PLDT's management over this issue, I would just like to point out a few items that your average PLDT shareholder such as myself and my investors would like better clarification on.
PLDT management mentioned that the board of PLDT is composed of ôindependent-minded and objective individuals who take to heart their fiduciary duty to protect the best interest of PLDT and its shareholders.ö While this is always a positive sign, I find it difficult to comprehend why First Pacific's board representatives would vote against their parent company's wishes with regards to the proposed divestment of their PLDT stake. These representatives, headed by none other than First Pacific's chief Manny Pangilinan, have a fiduciary responsibility to execute the proxies assigned to them by their ultimate employer, First Pacific. First Pacific representatives' primary fiduciary responsibility is to First Pacific, who happens to be the single largest shareholder of PLDT through their direct and indirect stakes in the Company. It appears that PLDT management' characterization suggests that all First Pacific's PLDT board representatives have forsaken their responsibility to their own shareholders and are acting as a rogue group. I'm sure both PLDT and First Pacific shareholders would like further clarification on this matter.
This is the part that worries me the most about this proposed transaction. This cavalier attitude among First Pacific's representatives sets a bad precedent that may affect how future institutional investors may view what's in store for them if they decide to invest in the Philippines. This rogue attitude among the representatives may also give future investors a glimpse of how ômeaninglessö proxies are in the Philippines. I agree that these may be strong characterizations and may not be representative of the entire Philippine business community but perception is reality in the marketplace, which is why the game First Pacific representatives are playing is a dangerous one.
Another somewhat disturbing statement made by PLDT management mentions that First Pacific only ôdirectly owns less than 10% of PLDT.ö I hope that they are not insinuating that First Pacific's indirect stake through their majority ownership of Philippine Telecommunication Investment Co. (PTIC) is not eligible for voting. After all PLDT made it very clear in their 1998 press release when they announced the First Pacific buy-in that First Pacific has the right to vote the entire PTIC block which is why First Pacific's voting stake is higher than their direct and indirect economic stake. Along the with additional voting and economic interest First Pacific gained from the merger of Smart Communications into PLDT, First Pacific's voting and economic rights clearly should be enough to control a widely held company such as PLDT. Unless of course there are once again a few side agreements floating around that were never disclosed to the rest of the minority shareholders which render this notion useless.
I realize that we can go round and round on this particular issue and yet may not accomplish anything. I suspect Mr. Pangilinan and PLDT's management are well entrenched into their positions and there is nothing a small shareholder like myself can say or do to change their mindset. I can only hope that at the end of the day, Mr. Pangilinan and his PLDT management realize the value of preserving the integrity of the business process. This process was designed for investors of any color, shape and size to be able to decide their own fate and not be subject to the whims of their fiduciaries. In my mind, there is a clear breach in Mr. Pangilinan's fiduciary responsibility to his First Pacific superiors and it appears that it has evolved to some sort of an entitlement issue for Mr. Pangilinan's group: They somehow feel as the rightful owners of First Pacific's equity stake.
Imagine a car aficionado acquiring an expensive car and in the process hiring a professional to drive the car for him. Then he decides to sell the car to another collector. Can you imagine the kind of mess that would develop if the hired driver refuses to turn over the car due to his perception that this new fellow collector is not fit to own it? I mean no insult with this simple analogy but the PLDT situation really boils down to this simple logic.
As mentioned before, while I'm not particularly excited with the prospects of the Gokongwei group controlling PLDT, I still would like to see the integrity of the due process upheld. This unusual event may very well become a case study on how future investors' view the Philippines as an investment destination. In this particular case, I don't believe the end justifies the means. While First Pacific's divestment requires no shareholder vote, it requires some sort of due diligence for any prospective buyer. All First Pacific is asking for is for some level of access for the Gokongwei group to see if all management representations with regards to the financials are accurate and free of any material misstatements. I don't believe that's too much to ask, especially coming from the largest shareholder. You can accommodate this request while sealing all technical details of the company from the Gokongwei group to avoid any intellectual property leakage. Besides, the Gokongwei's decision should really be based on the financial condition of the company and not on any other technical details. They should already be familiar with the telecom industry by now, having owned a telecom concern for a number of years. I can't help but wonder how PLDT management would treat a similar request from NTT of Japan, who is your second largest shareholder?
Please allow the process to continue and don't let your personal choices negatively impact the way future investors view Philippine business. I also encourage Mr. Pangilinan to expedite his effort in assembling a management buyout plan of his own.
Yours truly,
Eyal Shram
a concerned shareholder
