How a Public Utility was Acquired for Nothing

This is a true story.  It is very ingenious, smart, strategic and entrepreneurial.  A public multimillion public utility company was acquired from a foreign company by a local tycoon for nothing.

This was a kuwento by Prof Dudes Echauz, my professor on FinMan thirty years ago.

At the end of Laurel Langley agreement, the foreigners beginning l974 could no longer own public utility companies:    broadcast, advertising, energy companies in the Phil.  Thus the foreigners had no choice but to divest and sell to Filipino investors.

The deal

The deal:   20% d/p, balance payable in l0 years, the shares would have to be transferred now (to comply with the law)

Here is what the Filipino did:

l.  The tycoon borrowed money from a commercial bank the amount needed for downpayment.  He could have put up a collateral or could have been unsecured because of his credibility.

2.  The shares of stock from the American company on the basis on DP, and a contract.

3.  The tycoon established a holding company to hold on to the share and execute the contract

4.  The holding company pledged the share of the tycoon to take out the personal loan of the tycoon for the downpayment

5.  The holding company went public to produce money for:  cap ex and to pay for the loan incurred in 4.

6.  The amortization for the l0 year contract came from the earnings of the public utility company.  Smart.  Neat.
                    



We benchmarked this to buy a memorial park in the south.  The owner was a widow was old and did not want any more head ache.