They say Usaha Tegas Sdn Bhd, which has interests in the power sector in and outside Malaysia through listed Tanjong plc, is keen to team up with Philippine Long Distance Co (PLDT), which has been locked in a battle with San Miguel Corp (SMC) for control of Meralco since late last year.

Usaha Tegas is the private company of low-profile billionaire T Ananda Krishnan. The group has diversified businesses, from telecommunications, satellite television and oil and gas to power and gaming. Its flagship company is Tanjong, which is also listed in the UK.

“The electricity distribution business is new for Usaha Tegas, but it has similarities with PLDT which is the single largest shareholder in Meralco,” says a source.

Helmed by Manuel V Panglinin, PLDT controls about 47% of Meralco with the Lopez family while SMC holds a roughly 43% stake in Meralco with its allies.

At present, the Lopez family is managing Meralco with the support of PLDT but it faces an uneasy alliance with the SMC camp, which has four seats on Meralco’s board. The Lopez family only has two seats.

The driving force behind the Lopez family is PLDT, which has 30% equity interest in Meralco and five board representatives. The Lopez family owns a 13.5% stake in Meralco, to which PLDT has the first right of refusal should they decide to sell.

Among SMC’s representatives on Meralco’s board is its president Ramon Ang. The position of financial controller in Meralco is held by a PLDT nominee.

“The Lopez family is likely to sell if the price is good. Meanwhile, PLDT has been looking for partners in its bid to add value to Meralco and resolve the deadlock on the board. Usaha Tegas has emerged as a likely candidate to join forces with PLDT,” says a source.

The electricity sector in the Philippines is unregulated, which means there are different players in the generation, transmission and distribution segments of the industry. Meralco is primarily a distributor of electricity and serves Metro Manila. Its franchise area covers 9,337 sq km, where 23 million people, or about a quarter of the total Philippine population, reside. It serves more than 4.5 million customers in 29 cities and 82 municipalities. The business establishments in the franchise area covered by Meralco produce some 50% of the country’s gross domestic product (GDP).

Until October last year, the Lopez family was firmly in control of Meralco with a more than 33% stake. That month, SMC gained a foothold in the company after acquiring a 27% block in Meralco from the Government Service Insurance System (GSIS) for 90 pesos per share. The GSIS, which still has 3% equity share in Meralco, has accused the Lopez family of mismanaging the company.

Subsequently, allies of SMC acquired more shares in Meralco to raise their interest to 43%.

The Lopez family, in danger of losing control of the jewel in the crown of their business empire due to their debt obligations, quickly roped in PLDT. They sold a 20% block to PLDT, which also acquired Meralco shares on the stock market.

Finally, before a shareholders’ meeting in May this year, PLDT and the Lopez family, with a joint interest of 47%, managed to thwart a takeover by SMC.

Since then, there have been reports of SMC wanting to exit Meralco, of asset swaps to facilitate its exit and of who is looking for concession-related projects, but nothing has come of these so far.

“This is where Usaha Tegas comes into the picture,” says a source. “Together with PLDT, it can make better use of Meralco.”
The objective of a tie-up is to venture into the telecommunications business by using the distribution network of Meralco’s fibre-optic lines. This was also why SMC wanted to take control of Meralco.

As for Usaha Tegas, venturing into the Philippines would be a step in the right direction. If it succeeds in teaming up with PLDT, it would be synergistic with the operations of Tanjong and the unlisted Maxis Communications Bhd.

Tanjong is a major power generator in Malaysia but in recent years, it has expanded outside Malaysia. It has strong cash flow and could take a liking to the strong franchise of Meralco.

Maxis, meanwhile, could partner PLDT in entering the telecoms business via Meralco.

This article appeared in Corporate page of The Edge Malaysia, Issue 763, July 13-July 19, 2009.