Monday, May 30, 2016

Globe Announces Partial Acquisition of SMC Telecommunications Business

Wazzup Pilipinas!

In a meeting held earlier today, the Board of Directors of Globe Telecom, Inc. (“Globe”) (PSE: GLO), through its Executive Committee, approved the acquisition and signing of a sale and share purchase agreement and other related definitive agreements for the following entities:
  • 50% of the issued and outstanding capital stock of Vega Telecom, Inc. (“VTI”) from San Miguel Corporation (“SMC”) (PSE: SMC);
  • 50% of the issued and outstanding capital stock of Bow Arken Holdings Company Inc. (“BAHC”); and,
  • 50% of the issued and outstanding capital stock of Brightshare Holdings Corporation (“BHC”).
VTI owns an equity stake in Liberty Telecom Holdings, Inc., a publicly listed company in the Philippine Stock Exchange (PSE: LIB). It also owns, directly and indirectly, equity stakes in various enfranchised companies, including Bell Telecommunication Philippines, Inc., Eastern Telecom Philippines, Inc., Express Telecom, Inc., and Tori Spectrum Telecom, Inc., among others.

The transactions are intended to be completed immediately after the fulfillment of closing conditions specified in the definitive agreements.

The remaining 50% equity stake in VTI, BAHC and BHC shall be acquired by Philippine Long Distance Telephone Company (“PLDT”) (PSE: TEL) under similar definitive agreements.

The total enterprise valuation of VTI, BAHC and BHC was estimated at P70.0 billion, including total liabilities of P17.2 billion. Equity value amounts to P52.8 billion, which translated to an agreed consideration of P26.4 billion for Globe’s 50% equity stakes in the companies. This will be settled in cash payments on a pre-defined payment timeline; of the said amount, fifty percent (50%) shall be payable upon closing of the transaction. Thereafter, two payments, each for 25% of the agreed consideration, shall be made six and twelve months after closing, respectively.

Moreover, the transaction preserves the government’s option to enable a future player to offer telecommunication services because a significant amount of unused spectrum assets covering a complete set of 2G,3G, 4G, and potential 5G frequencies will be returned to the NTC.

“We entered into this transaction as a solution to harmonize the spectrum assets in the country and immediately unlock the benefits of the underutilized frequencies. Ultimately, our goal is to provide our customers with a better experience on our mobile data and home broadband services progressively over the next twelve months,” said Ernest L. Cu, President and Chief Executive Officer of Globe. “Coupled with our execution excellence as the preferred brand for Filipinos’ digital lifestyle choices, the additional frequencies will provide the much needed capacity to improve mobile browsing speeds that our customers would enjoy.”

Currently, the Philippine telcos are having difficulty improving the quality of mobile data services because of continued challenges with site acquisition for cell sites and the intensely bureaucratic permitting process of many local government units. At present, it takes about 25 permits spanning a period of eight months to get an approval to build one cell site. Also, the inconsistent and at times prohibitive fees across various LGUs are added challenges that increase the cost of ownership of these cell sites. These hurdles are some of the primary reasons behind the country’s current state of low site density, contributing to capacity issues and slow mobile internet. These challenges result to a relatively low number of cell sites serving the growing base of mobile data users. Notwithstanding the need to build more cell sites, having additional spectrum will provide some relief as it will immediately add new capacity with the existing number of sites.

The transaction is expected to provide benefits to mobile internet customers, given the added capacities and greater geographic coverage that additional spectrum, particularly that of the 700MHz frequency, can provide. This exemplifies Globe’s continuous commitment and investments in improving the network and quality of service. These investments will help us support the data needs of existing and new customers and allow them to enjoy their digital lifestyle.

In addition, Globe stands by its commitment to improve broadband speeds at home and its corporate data network. The company is set to deploy fiber optic cables in 20,000 barangays all over the country to provide faster and more reliable internet access in about 2 million homes nationwide. The infrastructure build is expected to take five years and will extend network coverage to more areas that currently have no connection or spotty service.

For 2016, Globe has committed to a program of capital expenditures (“capex”) amounting to approximately $750 million, which is slighlty higher than the actual capex recorded in 2015. With the growing demand for data and internet connectivity, the Company anticipates that majority of said CAPEX would be related to data, including spend for deployments of LTE mobile and LTE @Home, capacity and coverage augmentation of the 3G-HSPA+, VDSL, and GPON networks, as well as requirements for domestic transmission and international cable capacities.

We intend to brief the financial community and the general public on the transaction immediately.

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