Thursday, February 5, 2015

Wazzup with the Philippine Women's University/JASMS Takeover?

Wazzup Pilipinas! 

The Benitez family, and their schools, namely Philippine Women's University (PWU) and Jose Abad Santos Memorial School (JASMS), have recently been under online siege in the last few weeks. There were quite a number of unverified rumors spreading online and it was sort of difficult to verify the veracity of the accusations coming from questionable sources.

This controversy actually got me remembering about my former female colleague back when both of us were still working our way through college as service crews of one of the very popular fast-food chains in the country. She was a student at PWU, and I remember that so vividly because she would often report to work still wearing her school uniform bearing the school logo before she would change to our service crew outfits.

It was very evident that she was determined to finish college since it was quite difficult for women to be working students. It was hard enough for men to squeeze in some study time in our work schedule, what more for women who are more fragile. Unlike today when you can simply research online for some information, back in our days we would have to spend a considerable amount of time in the school library looking for those very elusive books containing the information we need.

I remembered the time when she mentioned her appreciation towards PWU's registrar and administration who gave her many opportunities to make-up for her incomplete and failing grades. It was during her last year at PWU when she told me, with teary eyes, that she would forever be in debt towards the school for allowing her to finally graduate.

Thus, this controversy involving her school has some sort of personal effect on me and I'm sure that some of my readers are also interested to know how I weigh in on this controversial issue. Therefore, I started researching, then did even more research, and finally got in contact with people in the know. Here's what I've been able to put together so far:

Let's Go Back to 2010

Five years ago Dr. Francisco “Kiko” Benitez returned to the Philippines from his position as a professor at the University of Washington in Seattle, to lead the Benitez family’s educational interests—PWU and JASMS—back from the financial problems that started with the 1997/8 Asian financial crisis and had plagued both institutions since. Under Dr. Benitez' leadership, the school's accreditation levels are being improved and the school of music has been designated as a Center of Excellence.

Enter Eusebio Tanco and STI

The following year, Mr. Eusebio Tanco, owner of STI, offered to help PWU in 2011 by coming in as an investor and offering P450m for a 40% stake in Unlad Resources Development Corp., a Benitez family holding company that owned some of the land and assets of PWU. The P450m investment was used to pay off the bank debt of P223m, buy back JASMS land from Jardine (P170m), and lend PWU working capital. As the deal was a joint venture, Tanco signed a document which waived interest on his loans to PWU, which I have seen with my own eyes.

Under the Joint Venture Agreement, the entire net (after debt) value of PWU was appraised at P1.12 billion, and Tanco's 40% came up to P448m. PWU assets would be exchanged for shares in Unlad under a tax-free property-for-share swap that was allowed under the Tax Reform Act of 1997, after which Tanco would get paid for the money he advanced, with shares that PWU would get in Unlad under the tax-free swap.

Under the terms of the Joint Venture Agreement, Mr. Tanco was given 6 out of 14 seats (the Benitez family retained 8 seats) and participated in the management of Finance, HR, and Marketing, while the Benitez family managed academics, in order to maintain the strong educational tradition they had begun when the school was founded in 1919. The joint venture was founded on the idea that Mr. Tanco’s expertise in technology combined with PWU’s Liberal Arts tradition would create a stronger, better, PWU.

To that end, Mr. Tanco promised that under his management, enrollment would rise from 4,000 to 10,000, but I guess promises were really made to be broken since within the three years of the joint venture, after high marketing expenditures of over P23m, enrollment did not significantly improve, increasing by an average of 300 students per year. During this time, tension mounted as the Benitez struggled with Tanco managers to maintain quality educational programs.

Fast forward to September 2014

 Over the course of the past three years, Mr. Tanco's lawyers and financial managers were unable to help Unlad get the BIR to approve the tax-free swap. The only way the swap would be allowed was to pay taxes amounting to P380m. While Tanco paid for the PWU loan of P230m, he put in only P20m into capital expenditures, using the other P170m, which should have gone into additional capital expenditures, to buy a 3,500 sqm portion of the previously foreclosed land beside the JASMS campus. The rest of the 1.1 hectare land was bought by Tanco. With this land and the 1.2 hectare JASMS campus (which he did not own), Tanco struck a deal with Ayala to put up a twin 33-storey commercial/residential facility with a mall that would reduce the school (including pre-school, grade school, high school and college) into a 9-storey building within a mere 2,700 sqm footprint on Tanco-owned land, requiring PWU to pay him rent. <-- That last detail has been noticeably lacking from other coverage of this issue! Even after contributing its 1.2 hectares, PWU/Unlad would still be required to borrow another P500m from Mr. Tanco/STI in order to participate in the condo-mall development. Although the PWU Board had given Mr. Tanco authority to negotiate, it was to build a better urban school respecting the JASMS tradition, not further sink PWU/Unlad into debt plus make them pay rent.

Surprise Announcement

When he announced this deal at his STI annual meeting, Mr. Tanco communicated that it was a done deal, even if he did not consult previously with the JASMS community (alumni, parents, and faculty). The parents and teachers were extremely upset as the development would put their young children at risk (about 20% are special-needs kids). Conrad Benitez wrote the Boards of Unlad and PWU saying that he felt it was not possible to effect the Joint Venture, as it was premised on a tax-free swap that was not viable without the prohibitive tax burden. He suggested instead that the parties look for ways to terminate the relationship amicably so that obligations made could be settled reasonably, and they could go their separate ways.

Tanco Responds

Mr. Tanco responded to the protest angrily. He launched an ongoing media offensive against the Benitez family, timed for the Christmas holidays when the courts are closed. He served PWU a notice of default after learning of the plans to end the joint venture, but the notice did not follow proper legal procedure and was thus not valid. He claimed that PWU/Unlad had defaulted, and demanding that, in 7 days, he be paid the P448M he advanced plus 3% interest compounded monthly from 2011, and 25% lawyer's fees on the whole amount, totalling P928 million, even though he had infused only P250m in cash. He then called a PWU board meeting that was not attended by enough directors to make it a valid meeting, declared the Benitez directors to have resigned, and appointed his own representatives to the board in place of the Benitez directors. He announced that STI was taking over (or “stepping in”) as the management of PWU. He also made the claim that he “retained” PWU’s chairwoman emeritus Helena Z. Benitez when in fact he demanded her resignation from PWU’s board. This provoked protests from PWU and JASMS students, faculty, and alumni who have openly voiced their support of PWU-JASMS, its chairwoman, and its president. According to this Manila Bulletin article, the PWU Alumni Association, JASMS Parents Association, faculty officers and staff, and the PWU student organizations all pledged support for the Benitez family. “We will not support the attempts to take over two venerable institutions, PWU and JASMS. It is our view that such an unconscionable act by the STI Group would be inimical to our interests as stakeholders and the public interest as well,” said the PWU-JASMS Community in its statement. It added that, if STI takes over both schools, “it will prevent thousands of children and students today and in the future to enjoy the benefit from quality education from PWU and JASMS.”

What's Happening Now?

A legal complaint was filed by PWU/the Benitez family against the Tanco group on the first day the courts reopened: January 6. Why? Because PWU is not in default under the terms of its agreement. The Benitez family still holds the majority stake in PWU and Unlad. Mr. Tanco signed amendments to the original agreements suspending interest and penalties on his loans, therefore his demand for P925m (including P125m in legal fees) is unfounded and without merit. PWU is committed to making good on its debt, but the amount of the demand is unreasonable and not commensurate to the amount borrowed. Mr. Tanco announced that, for the sake of the students, they are holding their default demand “in abeyance,” but reserve the right to take over PWU at any time. The question of the PWU takeover is now with the courts.

Let me now end this lengthy sharing of my research by knocking on everyone's heart, especially the alumni of PWU and JASMS, and requesting for all your support towards the unfairly treated underdog of this incident. We all know who's obviously the bad guy of the story, and it would be a waste to let the schools fall in the hands of those with questionable intentions.

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