ALTHOUGH preferred shares earn dividends and not interest, they form part of a company’s stockholders’ equity and thus represent ownership in a company. More importantly, in the case of voting preferred shares, these ensure the dominance of the majority stockholders in maintaining control of their conglomerates.
For instance, the Lopezes and the Zobels have proven themselves generous to the public by allowing them ownership of non-voting preferred shares. Ironically, they allocated exclusively to themselves and their allies most, if not all, the voting preferred shares issued by their companies.
Despite such practice, the two listed companies which are the subject of today’s Due Diligencer, show how the majority owners could comply with the rule on preemptive rights and at the same time strengthen their control thru their ownership of voting preferred shares.
A few words of caution: The issuance of voting preferred shares by listed companies to majority stockholders is not a monopoly of the Lopezes and the Zobels. Other families engage in similar practice, which is completely legal as far as the Securities and Exchange Commission (SEC) is concerned. The ownership structure of the two companies is cited here for illustrative purposes only. If some numbers are missing, making this analysis confusing, the fault lies in Due Diligencer and not on the filings posted on the website of the Philippine Stock Exchange (PSE).
Following is the story of majority ownership in First Gen Corp. (FGen) and Ayala Corp. (AC) via voting preferred shares.
The Lopezes’ FGen
FGen has outstanding capital stock of 5.36 billion shares, of which 3.66 billion are common shares. Of the company’s 1.7 billion preferred shares, 1.45 billion have voting rights divided into 1 billion Series ‘B’ and 468.55 million Series ‘E’ shares. The remaining 100 million Series ‘F’ and 133.75 million shares are non-voting.
First Philippine Holdings Corp. (FPHC) directly owns 2.424 billion, or 66.211 percent, of 3.661 billion FGen common shares, and 45.199 percent of 5.363 billion outstanding capital stock. It also holds 1.571 billion preferred shares, which are equivalent to 29.293 percent of total capital stock and 98.065 percent of 1.602 billion preferred shares.
With its 66.23 percent control of FirstGen’s common shares, FPHC is already assured of majority seats in the company’s nine-person board. However, it elects all seven members and appoints the two independent directors because it owns all of FGen’s 1.47 billion voting preferred shares.
All in all, FPHC holds close to 4 billion shares, or 74.5 percent of FirstGen’s outstanding capital stock of 5.36 billion shares, of which it holds 3.9 billion voting shares, or 73.4 percent of 5.3 billion voting shares.
Due Diligencer is presenting FirstGen’s capital stock because the company is worth watching, particularly the company’s Series ‘F’ and ‘G’ preferred shares, in view of the company’s P5-billion buyback plan which its board approved in May 2014.
On Oct. 5, 2015, FirstGen bought back 36.36 million Series ‘F’ preferred shares at P110 per share, leaving 63.63 million shares as outstanding.
Zobels’ listed flagship
Ayala Corp. (AC) has outstanding capital stock of 866.61 million shares divided into 619.6 million common shares with par value of P50; 20 million preferred B Series 1 shares with par value of P100; 27 million preferred B Series 2 shares with par value of P100; and 200 million voting preferred shares with par value of P1.
A public ownership report (POR) on AC’s common shares listed two principal or significant stockholders. Mermac Inc. and Mitsubishi Corp. own 303.7 million, or 49 percent, and 63 million, or 10.18 percent, respectively. AC insiders hold 1.67 million shares, or 0.27 percent.
The same POR credited to the public the ownership of 249.1 million common shares, or 40.20 percent.
Based on AC’s common shares alone, Mermac, which is the unlisted holding company of the Zobels, is not AC’s majority stockholder. To show the family’s control, the public will have to go back to the company’s earlier ownership postings.
As of Jan. 31, 2015, Mermac also held 303.7 million shares, equivalent to 37.06 percent of outstanding capital stock of 866.4 million shares, divided into 619.4 million common shares; 47 million non-voting preferred shares and 200 million voting preferred shares.
As the Lopez-controlled First Philippine Holdings Corp. was the majority stockholder of FGen because of their exclusive ownership of voting preferred shares, so were the Zobels in AC thru Mermac.
Aside from 303.7 million common shares, as of January 2015, Mermac also owned 159.6 million voting preferred shares, giving it a total of 463.3 million voting shares, or 56.5 percent. Mitsubishi held 63.1 million common shares, or 7.7 percent, and 32.64 million voting preferred shares, or 3.98 percent.
Together, Mermac and Mitsubishi controlled, as they still control today, 192.2 million AC voting preferred shares, or 96.1 percent of 200 million voting preferred shares. In addition, the two stockholders also owned, as they still own today, 366.8 million AC common shares, or 44.7 percent of 819.6 million voting shares.
As shown in the January 2015 ownership filing, Mermac and Mitsubishi combined account for 558.98 million voting shares which, when computed on 819.6 voting shares, are equivalent to 68.2 percent.