Dilution: A numbers’ game to weaken the minority

Emeterio Sd. Perez

Emeterio Sd. Perez

IF you and your group are the majority stockholders of a listed company, you can successfully perpetuate your reign by silencing the voice of the public.

How to do this?

It is easy. Alliance Select Foods International Inc. has shown this could be done. First, it denied its existing stockholders pre-emptive rights to new issuances of common shares, which are usually voting, by amending the pertinent provisions of its corporate charter.

Then, it invited friendly outsiders who hopefully would oppose any request of—and eventually the suit of—foreign stockholders to make public the books of the corporation.

Forget in the meantime the market performance of Alliance Select. What should be more important is for the company to again enjoy corporate peace that could happen only through transparency.

But peace could evade the company far longer than you could imagine unless one of the protagonists would give way to any kind of amicable settlement.

But one side would insist on opening the books while the other would continue to refuse.

Do the majority stockholders have something to hide behind the incorporation of Strongoak Inc. and the new company’s acquisition of 430.286 million Alliance Select, or 28.7 percent?

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Having sued the Dees and George Sycip, who, ironically, is an independent director but one who is not for the public but for the majority, Dr. Hong Hin Kay and Heidy S. C. Yap-Chua should know something that the individual but small stockholders of Alliance Select don’t know and should be told about.

The suits should bear out the truth about the alliance between the Dees and Sycip and the reason or reasons behind their refusal to make their deals public.

Apparently, the disclosures posted by Alliance Select on the website of the Philippine Stock Exchange are not enough to satisfy the curiosity of the Singaporeans over financials of what is supposed to be a public corporation. Their only recourse was to sue the majority.

Meanwhile, while Alliance Select has been caught between two contending forces, its small stockholders and the investing public who trade on listed stocks could only hope the something positive would come out of the corporate wars.

But the fight has been worsened beyond repair. What began as a suit for the opening of the corporate books has been diverted to one accusing the Singaporeans of being interested in controlling the management of Alliance Select.

Due Diligencer has done some computations and arrived at this conclusion: Should the foreigners succeed in taking over Alliance Select, then the Dees should fire their corporate secretary and Sycip too, the latter for not giving them the right advice by pre-empting the move of an antagonistic group of stockholders.

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Something should be told about the numbers’ game. The holdings of the Singaporeans do not have enough votes to do what they are being accused of. Perhaps, their lawyers know better than Due Diligencer. But as far as computations would show, 30 percent holdings or even more but less than 51 percent, would not enable the minority to control the board, even if they nominate one of two independent directors—and even if they win the Social Security System, which owns less than 10 percent, to side with them.

Luckily, the majority of stockholders have Sycip on their side. Washington Sycip should be very proud of his son.

The calculation should also show that 30 percent of 10 would be three. This could mean only one thing: the Singaporeans are limited to electing only three nominees unless the Dees would allow them more. Even if this kind of generosity would happen, though that would never be possible to happen, the ratio – 4 to 6 – would still be in favor of the majority owners.

Besides, the Dees saw to it that they have a new block on their side—Strongoak whose investment has effectively diluted the existing stockholders’ ownerships. The dilution should be explained. Will the Dees and Alliance Select disclose to the public the circumstances that led to the entry of this new stockholder?

There is nothing wrong with a small-capitalized company to have invested P563.675 million in 430.286 million new Alliance Select shares, which represent 28.7 percent of outstanding shares. Never mind if it has only P62,500 in paid-up capital as long as its investments in Alliance Select had the backing of a big investor or a group of investors or conglomerate.

In the case of Strongoak, it is a wholly owned subsidiary of Seawood Resources Inc. Probably, as the parent, Seawood must have paid for its unit’s more than 28 percent holdings in Alliance Select. But the question that begs for believable answers is why it did not directly invest in Alliance Select, instead went through the tedious process of registering with the Securities and Exchange Commission a new stock corporation that it used in owning a significant stake in a listed company.

The public should also be told everything about Strongoak’s mother. Will Avelino M. Sebastian Jr., the corporate secretary, disclose the identities of the people behind both the parent and the subsidiary?



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