An investor writes Manny an open letter on PLDT
By The Editors 26 August 2002

An irate US-based investor has written an open letter to FinanceAsia
on how he views the debacle at PLDT.

AN OPEN LETTER TO MANNY PANGILINAN
By: Eyal Shram, a US-based investor

Dear Mr. Pangilinan:
I've been following the PLDT/First Pacific developments since rumors
started circulating back in April that First Pacific was interested
in selling all their Philippine-based assets. At first I didn't
believe the rumors since this would have indicated that First Pacific
was already throwing in the towel on their Philippine bets. It would
have been equivalent to buying high and selling low which was hardly
First Pacific's investment track record. Now that rumors have been
validated by official statements from both sides, I can't help but be
utterly amazed at what has transpired the last couple of months since
First Pacific initially went public with their intentions. The
unconventional ways in which this whole event has unfolded and
continues to evolve is unprecedented, even at times comical. I
struggle to imagine how this can benefit and improve the negative
sentiment and perception already prevailing among international
investors on how business is done in the Philippines.
I'm both a PLDT and First Pacific shareholder so I thought I'd air my
perspective, in the event that somebody shared my thoughts and views.
I'm a Philippine-born Israeli living in the US so I'd like to think
that my views are somewhat objective, having lived in the Philippines
for a number of years and having been exposed to how business is
conducted on both sides of the Pacific. I'm not attached to either
group and the main reason I purchased my shares in both PLDT and
First Pacific when they were hitting their all time lows late last
year to early this year was the underlying value I saw and still see
in both companies. I work as a private and public equity professional
so I'd like to think I'm somewhat qualified in evaluating these
matters.
When I first heard of the rumor about this transaction, the first
thing that came to mind was that this may not be a good deal for
PLDT's minority shareholders, given my own impression of Mr
Gokongwei's past investment style. His flagship holding company, JG
Summit, trades at a fraction of its book, net asset and intrinsic
values. Compare this to Ayala Corporation which trades at a slight
premium to its book value even though it trades at a slight discount
to its net asset value (NAV), and one would get an idea of how the
market perceives John Gokongwei as a businessman.
But since I'm a PLDT shareholder as well, I was hopeful that whatever
offer Mr. Gokongwei was willing to make would lift the share price of
PLDT at the time. So the second thing that came to mind was that this
offer price, which is a big premium to the current trading price,
would benefit me and my investors in the event PLDT stock price
starts closing the gap between the prevailing share price and the
offer price. Alas, I was dead wrong. While PLDT experienced a slight
appreciation the day the deal was announced, the share price quickly
went south as the market began to imagine the prospects of a
Gokongwei regime at PLDT. Not to mention the huge overhang created by
your PLDT management's, refusal to cooperate on the deal.
While I'm not a big fan of the Gokongwei group, I'm also not thrilled
with your lame strategy of abusing the legal system to achieve your
personal business goals. This is exactly what you've done as you
continue to cite PLDT's By-Laws as a stumbling block to the deal. I'm
only assuming that your goal is to tie this transaction long enough
in the legal system with the hope that the Gokongwei group would get
discouraged from pursuing this transaction any further. One can also
only assume that you're merely interested in preserving the status
quo so you can preserve your PLDT position and probably attempt to
save face on your ill-timed bets on the Philippines. Decent strategy,
but a very cowardly one considering you've already breached the same
By-Law provision you're constantly citing when you led First
Pacific's acquisition of a control position in PLDT back in 1998. As
you can recall, First Pacific should have been considered
a 'competitor' at the time since they had a controlling stake in
Smart Communications. A classic example of applying double standards
to serve one's needs.
Your attempt to leverage the legal system is frustrating and
counterproductive. The time has come for you, Mr. Pangilinan, to
either put up or shut up. What you're doing is not only detrimental
for PLDT shareholders but also negatively impacts Philippine
business. A 'rouge' employee's refusal to heed the wishes of his or
her controlling shareholders could send negative signals to
international investors looking to invest in the Philippines. A
shareholder like First Pacific should be able to do whatever they
please with their equity investments, especially a controlling
position in a public company. They should be able to sell their
position to whomever they want to sell it to. And if you would like
to continue your reign in PLDT and protect your turf, you should
focus more of your efforts in raising the capital required to
purchase this stake rather than freely spending vital PLDT resources
in delaying this transaction further by putting up legal hurdles.
You've made it clear time and again that you're a long-term investor
in PLDT which I'm sure all shareholders, including myself,
appreciate. Your phenomenal track record as a private equity investor
and as head of First Pacific speaks volumes of your capabilities and
intelligence. I've always been fond of First Pacific since I viewed
it as a publicly traded buyout shop. There's no doubt that you have
created a tremendous amount of wealth for your First Pacific
shareholders since you co-founded First Pacific in 1980. However,
your Philippine sector bet did not work and has not evolved as
planned, thru no fault of your own, of course. You just got caught in
the midst of a shifting business cycle which was exasperated by your
ill-timed entry into the Philippines. Time can only tell how these
investments will turn out if you are given more time to manage them.
I'm in the mindset that these are good bets and all the value lost
will be recouped in due time. However, it seems that your employers
at First Pacific no longer share your long-term vision and would like
to cut their losses at this point and re-deploy the remaining
resources elsewhere. As investors, large ones at that, they should be
allowed to do that.
If you really believe the true intrinsic value of PLDT, you should
just focus your defense on raising the necessary resources to lead a
management buyout. I can only guess that you are having a difficult
time raising the proper financial support given the current
environment in the telecom sector throughout the world. Otherwise,
I'm sure you would have already unveiled your competing offer if you
had one. Once again, I can only assume that your legal strategy is
merely a ploy for you to buy more time to assemble your competing
offer. Mr. Pangilinan, it's been more than two months since First
Pacific went public with their intentions. From that point, you and
your team have done nothing but delay this through legal means. You
should have a pretty good sense by now if your fund-raising efforts
are going to bear fruits given what you've already observed in the
capital markets. My guess is that you can't raise the funding given
the current state of the capital markets. If that's the case, you
should just respect all business protocols and acquiesce to the
wishes of your employer, so everybody can move on. After all, you
have a fiduciary responsibility to First Pacific which supercedes all
your fiduciary responsibilities to all their affiliates and
subsidiaries. Not to mention this is a big distraction to PLDT
management and could negatively impact the company's performance.
Let's also not forget the fact that you wouldn't be the highly
successful Manny Pangilinan you are now if not for your First Pacific
principals. They gave you the business platform you needed to
demonstrate your investment acumen which enabled you to achieve your
current business and social status. This is no way, in my opinion, to
pay them back.
Believe me, there is nothing more I'd like than to see an 'indigenous
Filipino' (a term the Wall Street Journal used to described you) from
a middle class background to control and own a majority of PLDT. This
will send positive signals and encourage a lot of aspiring middle
class Filipino entrepreneurs that they too can achieve great success
even if they don't necessarily have the family resources or
the 'right' surnames. Mr. Pangilinan, I urge you not to ruin your
reputation and your three decades' worth of business accomplishments
by acting like a rogue employee whose actions may be perceived as a
mere desperate attempt to preserve his cushy position as head of one
of the jewels of Philippine business. I urge you to act responsibly
and professionally in this matter and conduct yourself as a first
rate fiduciary. Please allow the proper business protocols to prevail.Sincerely,
Eyal Shram
a concerned shareholder
The views expressed in this letter are those of the writer and do not
necessarily represent the views of FinanceAsia.

© Copyright FinanceAsia.com Ltd

PLDT shareholder riposte
By Eyal Shram 03 September 2002
PLDT shareholder, Eyal Shram responds to the company's letter on
Friday.

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.

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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 "independent-minded and objective individuals who take to heart
their fiduciary duty to protect the best interest of PLDT and its
shareholders." 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 "meaningless" 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 "directly owns less than 10% of
PLDT." 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


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