Diluting public ownership of Pure Foods to 0.412%

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The authorized capital stock of San Miguel Pure Foods Co. Inc. as of April 17 this year stood at 206 million common shares and 40 million preferred shares. Both classes had a par value of P10 per share, as stated in the company’s general information sheet (GIS).

The same GIS listed 123 Filipinos as owners of 156.175 million PF common shares, or 93.703 percent of 166.670 million outstanding PF common shares. It also showed 102 Filipinos holding 14.908 million PF preferred shares (PFP2), or 99.406 percent of 14.997 million outstanding PFP2 shares.

As minority stockholders, foreigners owned 10.495 million PF common shares, or 6.297 percent of outstanding
PF common shares. They also held 89,145 preferred shares, or 0.594 percent.

On Nov. 6, trading in Pure Foods common shares opened at P311 and closed at the session’s high of P462. The stock’s closing price of P462 gave Filipino stockholders paper wealth of P72.153 billion. Foreigners’ holdings of 14.997 million PF common shares had a market value of P6.929 billion.


San Miguel Corp. (SMC) is the majority stockholder of Pure Foods. A public ownership report (POR) as of Sept. 30, 2017 listed SMC as beneficial owner of 142.279 million PF common shares, equivalent to 85.367 percent of 166.667 million outstanding PF common shares.

The same POR reported 170,874,854 PF common shares as “listed,” 142.333 million PF common shares, or 85.4 percent, as “non-public” and 24.334 million PF common shares, or 14.6 percent, as “public.”

Amendments

Just this Nov. 6, Pure Foods amended its corporate charter, particularly its Articles of Incorporation. In a filing, it said its board approved the changes particularly in Article 7, which did not need stockholders’ ratification because it already had deprived its public stockholders of “pre-emptive rights to the issuance of any and all preferred shares and disposition of any and all of the common shares.”

Due Diligencer is focusing more on the expanded authorized capital stock of Pure Foods to 12 billion common shares, divided into 11.6 billion common shares and 40 million preferred shares.

Under the new authorized capital stock, Pure Foods would reduce the par value of its common shares to P1 per share from P10, but would retain P10 as the par value per share of preferred shares.

“From the increase in the capital stock, approximately thereof, or 4,242,549,130 common shares with a par value of P1 per share will be subscribed by San Miguel Corp.,” according to a Nov. 3 filing of Pure Foods.

When computed, SMC’s subscription to 4.243 billion common shares would represent 44.471 percent of 9.54 billion common shares that would be added to Pure Foods’ authorized capital stock of 206 million common shares at P10 par value per share, or 2.06 billion common shares at P1 par value per share.

The issuance to SMC of 4.243 billion PF common shares would be in exchange for its ownership of 7.859 billion common shares in San Miguel Brewery Inc. and 216.972 million common shares in Ginebra San Miguel Inc.

Details

Instead of basing the computation on the resulting outstanding PF common shares, Pure Foods used the additional 9.54 billion PF common shares in getting the percentage equivalent of SMC’s subscription to 4.243 billion PF common shares.

In a filing, Pure Foods meant it raised its authorized capital stock to 11.6 billion PF common shares with a P1 par value and 40 million preferred shares with a P10 par value, from 206 million PF common shares and 40 million preferred shares with a par value of P10 per share.

At P1 par value per common share, Pure Foods’ original 206 million common shares with a par value of P10 per share under its authorized capital stock would increase to 2.06 billion common shares. As a result, the company would have an authorized capital stock of 2.1 billion shares, divided into 2.06 billion common shares and 40 million preferred shares.

Pure Foods needs to increase its authorized capital stock to 12 billion common and preferred shares to accommodate San Miguel’s additional subscription to 4.243 billion PF common shares.

Due Diligencer’s take

Pure Foods does not need the public stockholders to ratify SMC’s additional subscriptions. The Securities and Exchange Commission allows it to bypass the public, who don’t enjoy pre-emptive rights over additional issuances of any kind of stocks.

The public stockholders have something to worry about, particularly those holding Ginebra San Miguel Inc. shares. They will never know the fate of their holdings in the company, which is also listed on the Philippine Stock Exchange.

Will SMC’s share swap with Pure Foods for its ownership in Ginebra and San Miguel Brewery result in the delisting of Ginebra.

San Miguel Brewery has long been out of the stock market.

By the way, SMC’s ownership of 142.279 million PF common shares at a par value of P10 per share would be equivalent to 1.423 billion common shares at a par value of P1 per share. This, plus 4.243 billion PF common shares, would make SMC the owner of 5.665 billion PF common shares, which, in turn, would be equivalent to 95.873 percent of the resulting 5.909 billion outstanding PF common shares.

What would happen to the public stockholders’ ownership of 24.334 million PF common shares, or 14.6 percent? Would the SEC allow it to be diluted to 0.412 percent when Pure Foods is recapitalized? Would this mean tolerating a listed company to reduce its public ownership by 9.588 percent, which would be way below the required limit of 10 percent? Just asking.

esdperez@gmail.com

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