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Share swap enabling third telco backdoor listing hurdles competition regulator

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A SHARE SWAP that will facilitate the backdoor listing of third telco DITO Telecommunity Corp. has been approved by the competition regulator, with the market proceeding to revalue the shares of one of the swap parties with a 25% drop.

The revaluation came after the financial advisor engaged to provide a fairness opinion on the swap concluded that the transaction’s terms fell outside its own valuation range, to the advantage of DITO CME Holdings Corp., the Udenna Group’s communications, media and entertainment arm.

The other party to the swap was Udenna Communications Media and Entertainment Holdings Corp. (Udenna CME).

“The company… discloses that it has received today, 9 March 2021, clearance from the Philippine Competition Commission with regard to the share-swap transaction,” DITO CME told the bourse.

“The PCC noted that the share-swap transaction does not breach the thresholds prescribed by the Philippine Competition Act and its Implementing Rules and Regulations, and qualifies as consolidation of ownership in the same natural person,” it added.

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On Tuesday, DITO CME released the fairness opinion report on the transaction, which was prepared by its financial advisor, Multinational Investment Bancorporation (MIB).

MIB noted that in the share swap transaction, DITO CME will issue 11.2 billion common shares at P6.11 per share in favor of Udenna, in exchange for 10 million shares of Udenna CME.

“This will translate to an actual swap ratio of 1,120:1, or 1,120 DITO CME shares for every share of Udenna CME,” it said.

The fairness opinion on the deal valuation was based on DITO CME shares’ net asset value (NAV) and volume weighted average price (VWAP); and a discounted cash flow analysis and NAV of DITO Telecommunity.

DITO CME’s NAV was estimated at P1.4944 per share, while the VWAP came to P6.2654 per share.

Udenna CME, MIB noted, is not an operating company, and its main asset is its 89% interest in DITO Holdings Corp., a holding company that is separate and distinct from the listed DITO CME.

DITO Holdings’ interest in the third telco was 60.07% prior to the share swap, MIB said.

MIB concluded that the acceptable ratio for a share swap should be a range of 1,238.57-6,005.04 to one. “In other words, for every share of Udenna CME to be acquired, DITO CME should issue between 1,238.57 to 6,005.04 shares,” it said.

“In the planned share swap transaction, DITO CME will only issue 1,120 shares for every Udenna CME share, which is lower than what DITO CME would otherwise issue following our valuation. Hence, we are of the opinion that the actual swap ratio of 1,120: 1 is advantageous to the shareholders of DITO CME,” it added.

DITO CME Holdings shares closed 25% lower at P9.00 on Wednesday. — Arjay L. Balinbin

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