Making Sense on TDY Consolidation

On July 31, 2012, Tanduay Holdings, Inc. (TDY) disclosed the following: [1]

Lucio Tan (LT) wishes to consolidate his assets to TDY by having TDY acquire/invest in the companies above.

In order to determine the value of TDY after the consolidation of the mentioned companies, we may approach the valuation in two ways: accretion in earnings per share or book value accretion.

The consolidation of LT group’s assets in TDY shares will actually diminish TDY’s earnings but it can increase TDY’s assets to 18.75 per share.

Additional considerations:

According to a disclosure in the PSE, some of PNB’s assets require regulatory approvals which may delay TDY’s investment in the bank. [2]

TDY application for increase of authorized capital stock from 5 billion shares to 25 billion shares is approved by the SEC. Although the increase does not mean that all the 25 billion will be issued, it still suggests a possible dilution thus in effect may distort our computations above. [3]

Computation of 32%:


  1. Change in corporate name to LT Group, Inc.; investment in companies; Special Stockholders’ Meeting on September 18, 2012; resignation/election of directors; Lifting of trading suspension,
  2. Filing of application with SEC for amendments to Articles of Incorporation and By-Laws; Update on investments in companies under the Lucio Tan group,
  3. SEC approval of increase in authorized capital stock,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.


Making Sense on PNB-ABC Merger

The Philippine National Bank (PNB) and Allied Banks (ABC) merger where PNB will be the surviving entity was approved by PNB’s shareholders way back 2008. The merger did not immediately push through due to regulatory issues specifically on ABC’s 27.78% stake in Oceanic Holdings which owns Oceanic Bank Holding Inc. US Federal reserve requires ABC to divest the stake before merging with PNB.[1]

In order to expedite the merger, ABC decided to transfer their stake in Oceanic Holdings to a trust fund on October 11, 2011 to be later sold to a third party.[2] As of July 26, 2012, PDIC approved the merger and BSP on August 2, 2012. Just recently, September 9, 2012, SEC approved the merger. With ABC’s Oceanic Holding stake divested and all three regulatory bodies giving the green light, PNB-ABC merger is good to go.

Using the terms of the merger as disclosed in the Philippine Stock Exchange,[3] we can have a rough calculation of PNB’s net assets and net income per share after the merger as shown below:

The merger would cause dilution of PNB shareholders’ EPS from P5.83 to approximately P4.78 or 15% decline but will increase PNB’s book value attributable to common shareholders from P49.03 to P57.22 or 17% increase. Other business developments due to the merger transaction that is not immediately quantifiable are economies of scale, market share growth, and access to new markets.

Market share growth and access to new markets is achieved by PNB in the merger by boosting their current 344 branches to 668 branches with the inclusion of ABC’s 324 branches. This also means that PNB will be able to instantly increase their branches in a profitable geographical market such as the Metro Manila thus creating a more cohesive franchise. Economies of scale will be achieved through reduction of senior management and redundant operations functions. For the year 2011, ABC’s management received total compensation and bonuses of 808 million.


  1. “PNB-Allied Bank merger to be completed in 2010”
  2. “Board approval of execution of Voting Trust Agreement re: Oceanic Bank’s shares,”
  3. “Board approval of amendment of Plan of Merger with ABC, resignation/election of directors,”

Disclosure: No position on any stock mentioned above.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Making sense of the JTH-STI Reverse Merger

Reverse merger occurs when a buying company becomes the acquired company. This is possible in transactions that involves share swap.

On a disclosure by JTH, JTH shall swap 6.5 JTH shares with a par value of P.50 for every 1 share of the majority shareholders of STI that has a par value of P1.  [1] The result of the said transaction shall make the majority shareholders of STI gain 83.96% ownership in JTH. However, discussions on the controlling stake are irrelevant since both companies are led by the same man, Mr. Eusebio H. Tanco.[2]

Currently, JTH is a company that has no commercial operations and has total assets of 664 million which is composed of 51% cash. With a total liability of only 21 million, JTH is virtually debt free. The recent disclosure regarding the purchase STI will provide JTH a sustainable source of revenue. However, since STI is a private company, we have no information regarding its total assets and earnings. With incomplete information, let us calculate the unknown factors using publicly available information.

JTH generates no income so we can assume that JTH will book an estimated whole year net income of P270 million for 2013 or an estimated forward EPS of .07 (P270 M / 3,749,226,871sh[4]).

Mr. Tanco’s move in making STI public through backdoor listing would hint that his ultimate goal is to raise funds through share issuance. The funds may be used for expansion through offering of additional courses throughout STI’s 85 campuses and educational centers or opening of new campuses. The funds may also be used to invest in industries that can create synergy with their current revenue generating businesses.

Disclosure: No shares on any stock mentioned

1.   Comprehensive Corporate Discolsure re: share-for-share swap with STI Education Services, Group, Inc.; Trading Halt
2.   JTH and STI ownership structure:

3.   Estimation of profit margin:

For conservatism, STI’s profit margin is assumed to be 18%.

4.   Estimated total outstanding shares: