Sin of omissions by listed companies

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Emeterio Sd. Perez

THE rules implemented by the Securities and Exchange Commission (SEC) require listed companies to disclose their takeover of another company that may or may not be listed on the Philippine Stock Exchange (PSE). Such disclosure is necessary to inform the public of the company’s latest acquisitions.

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The problem, though, lies in the method of disclosure. Whether intentionally or not, listed companies may be guilty of the sin of omission, failing to make their filings fully informative.

Due Diligencer is not identifying any particular filing so it doesn’t get accused of picking on certain families who own and control certain conglomerates. It is only providing information for SEC officials who may want to review the rules governing corporate takeovers or acquisitions.

In the course of any such review, the SEC might even discover their failure to notice omissions from some disclosures.

From a few of my articles in the past, I can see I had written about those omissions. This time, I am focusing more on listed companies that opt to expand their reach via acquisitions. It is up to the public investors to decipher the intended message of the disclosures posted on the PSE website.

Ownership filings

With access to the PSE website, public investors who may be more curious than others about the contents of disclosures have a vital source of information to guide them in deciding which stocks to either buy or sell. They have at their disposal the disclosures posted on the PSE website, which listed companies deem important for dissemination.

For instance, SEC Form 23B is about changes in beneficial ownerships. When it is filed by majority stockholders, public investors are warned against certain omissions, which they ought to know.

Why would there be such omissions when the PSE website can easily accommodate all kinds of postings – be they brief or too long for any investor to easily digest?

The problem with SEC Form 23B lies in the lack of facts provided by the company in its disclosure. As I have already discussed in a previous Due Diligencer piece, a disclosure about a corporate acquisition or takeover should identity the owners of the company taken over by a listed company. In this way, public investors would be able to monitor the price movements of the listed shares of the buying company.

Don’t forget the insiders, who are mostly executives. Their holdings may be not significant enough to affect the prices of listed stocks but their trade could also influence the listed stocks.

Unspecified PSE postings

If a PSE posting is about “material information/transactions,” what could that mean?

As defined, a filing is “material” when it is significant enough to affect the prices of listed shares. If this is so, a listed company should go direct to the point by changing the title to “acquisition of a new company” if such is the case.

The filing “material information/transactions” is too vague to be easily understood. If it is about a total takeover, why not say so in the title itself for the public to know at first glance what that disclosure is all about.

If a disclosure is about investments in other countries by a listed company, it should send the message as clearly as possible by posting “foreign investments” followed by the identity or identities of the country or countries making the investment.

In short, the disclosures should be informative in the filing’s title for the full appreciation of the public investors. By studying these filings, investors who are never privy to anything going on inside the boardrooms would know if the listed shares of the disclosing companies are worth buying or not
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Even the “statement of changes in beneficial ownership of securities” should indicate whether the insiders are either buying or selling.

Diversification

If a listed company talks about diversifying into another business, it should say so. Its filing should name the selling stockholder or stockholders if it is buying majority ownership.

In addition, a filing must be clear about the issuance of primary shares if the intention is to add a significant stockholder to the existing owners of a listed company. Will the new stockholder be buying enough number of common shares that would entitle the new entity to a directorship?

Again, the filing should also contain the names of the stockholders of the new significant corporate stockholder. Does the new corporate stockholder also belong to the group of companies of which the existing majority owner or owners are also among the subsidiaries?

The entry of new corporate stockholders into a listed company could either be good or bad for the market. For this reason alone, the SEC should live up to the expectations of public investors that the regulator would require listed companies to comply religiously with the full disclosure rule. In turn, PSE postings should be “Accurate, Relevant and Timely.” These three elements comprise what is called the ART of market transparency.

esdperez@gmail.com

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