Globe Telecom Inc and Philippine Long Distance Telephone Co (PLDT) have both agreed to buy out conglomerate San Miguel Corp from the telecom industry for $1.5 billion with a vow to put more investments in a very slow-paced internet service industry.
The buyout is the Philippines’ biggest deal in nearly three years, pushing up shares in both PLDT and Globe after the announcement that the companies will be splitting the 61.9 billion peso ($1.48 billion) purchase of the company 50-50 between them. The deal will be debt financed along with sales of assets.
San Miguel pulled out of their bid in the telecom industry two months after negotiations with Australian telecom company Telstra Corp Ltd collapsed. The withdrawal of the company is under scrutiny for regulatory clearance. The completion of the sale will allow the food-to-power corporation to proceed with other infrastructure projects.
The deal fell through as the country’s president-elect Rodrigo Duterte warned communications companies that he would ease rules of foreign ownership of companies and invite other firms to cash in on Asia’s fastest-growing economy to boost snail-paced internet services. The deal will allow Globe and PLDT to solidify their hold on the $6 billion-revenue market and make it more difficult for potential new entrants.
“It’s not that easy to come in,” According to fund management company, Philequity Management Inc, director Wilson Sy. “Capital expenditure is so huge…Additional players will find it difficult versus those who are entrenched.”
The terms of the deal will enable Globe and PLDT to acquire San Miguel’s 700Mhz spectrum network, which allows for wider reach and 4G compatibility. According to the companies, other radio frequencies will be returned to the government to allow competitors into the market.
Other telecom service companies like San Miguel exist in the Philippines but have not yet developed their service offerings to the public. According to industry experts, the deal made dominance of the two telecom giants uncontestable with PLDT holding 57 percent of the wireless market and Globe holding 43 percent.
“It will be very difficult for a new player to enter. What (the government) should do is review all spectrum allocations to reserve space for new players,” said Internet Society Philippines chairman Winthrop Yu.
The Philippine Competition Commission said that it will investigate the transaction after the company’s announcement. The Commission shall assess and take action as appropriate,” the regulator said in a statement.
Out of 22 countries, the Philippines ranked 21st in internet speed just above Afghanistan which holds the 22nd place as studied by Ookla data analytics. The deal’s goal is to increase internet speeds and pushed up shares of all three companies with PLDT increasing by 11 percent, and Globe and San Miguel by 6 percent each.
The deal, second only to the $1.66 billion deal between JG Summit Holdings Inc and Manila Electric Co, is said to not require parliamentary clearance, according to PLDT head of regulatory affairs Ray Espinosa during a news conference. It is, however, still subject to be approved by shareholders and regulators.