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ABOUT PCG
The Private Clients Group (PCG) is the premium broking and investment advisory service of COL Financial. At PCG, we work
with our clients and help analyze their financial goals, sorting out what is valuable to you, to deliver proper investment advice
with special expertise in stocks and other equity related products. Our Teams investment philosophy is guided by proper
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IMPORTANT ADDENDUM: We were recently informed that there might be an express lane set-up for
investors who would tender their EDC stock certificates instead of having these certificates lodged
through a broker first. (In reference to statement made under header Who can offer shares).

For more information regarding this process, you may get in touch w/ EDCs stock transfer agent:
Securities Transfer Services, Inc. Tel. 490-0060
THE RWAV OutPlay
Exposing special events that can move stocks and markets in either direction

August 7, 2017 / Monday / 2:35 pm

EDC Tender Offer and Probable Privatisation: Free Money on the Table?

A major corporate action was announced last August 3, involving listed companies EDC and FGEN
and their unlisted subsidiary companies.

A consortium of new investors, backed by Macquarie Infrastructure Management and GIC

(Singapore Sovereign Wealth Fund) launched a tender offer to acquire shares of EDC, at 7.25 per
share. The tender price represents a 21.8% premium over the close of EDC shares a day before the
announcement (Php 5.95).

Reading through the disclosures and based on our talk with persons familiar with such actions, we
summarise the important points to consider, for the benefit of our clients who: 1) may have EDC
shares in their portfolio, or 2) may want to do an arbitrage on EDC.

The main question is: Should existing shareholders sell their shares now ( current price is
6.90 6.93 per share ) or take full advantage of a higher price at tender ( 7.25 )?

A) Company

Currently, EDC is majority owned by FGEN. Both listed companies are controlled by the Lopez
family. FGEN owns, via various subsidiaries, ~50 % of the common shares of EDC. If we include
preferred shares which carry voting but not economic rights, FGEN controls 70% of EDC. EDC is
engaged in power generation, with the ~ 600MW Leyte Geothermal Complex as its major asset.
The latest ownership disclosure from the company dated July 11, 2017 states that the general
investing public owns 49.28% of the common shares of the company.
 B) The Tender

The new investors want to buy up to a 47.5% economic interest in EDC (common shares). This is
equivalent to 8.9 bn shares for a total consideration of Php 64.5bn. Since FGEN has also announced
they would continue to control EDC, it means that the new investors will most likely acquire most of
the shares they want from the investing public. If all public shareholders tender their shares, and
those shares are the only sources of shares, then the public float falls to 1.78% - putting EDC into
automatic delisting after the event.

C) FGEN to sell as well

However, FGEN has disclosed also that they will participate in the tender offer as a SELLER, and
will divest a portion of their shares. FGEN is a confirmed seller, for up to 2bn common shares or
10.6% of EDC. Post tender, FGEN will remain to be the controlling shareholder of EDC.

D) Who can offer shares?

All existing shareholders of EDC can participate via their stock brokers. For COL Private Clients,
you can call your PCG broker anytime and we will facilitate the process. For clients still
holding EDC CERTIFICATES, it is imperative to talk to us ASAP, as these shares have to be lodged to
your brokerage account before they can be sold. If you comply with all the requirements, the
lodgement process can take between 1-2 weeks to finish. For online accounts, there will be a
button on your account page that will lead you steps to go through the tender process.

The offer period starts August 10 and officially ends September 18, 2017. Some brokers however
may opt to declare an earlier deadline, for their internal operations to reconcile the numbers
correctly. A safe buffer would be 4 or 5 days prior to D-day, taking into mind that the settlement
calendar for shares of stocks is T+3.

Dont wait until the last minute to inform your broker if you want to participate!

Is there Free Money to be Made?

This is the question on most investors minds. At the current share price of 6.90 per share (Aug 4
closing) vs the tender price of 7.25, there is 5% gross gain ( excluding brokers fees and sales taxes )
that can be had, for speculators who may want to take advantage of the price discrepancy between
now and the tender date deadline.

HOWEVER pay attention please there is no guarantee that ALL your shares will be tendered.
Take note that FGEN is being guaranteed that they will be able to sell a portion of the total shares to
be purchased, which means public shareholders who tender will only be able to sell between 80%
to 90% of the shares that they own.
What Happens to the Remaining Shares

Estimates place the public float of EDC to fall to ~12.5% post-tender. This is well within the
threshold ( 10%) set by the Exchange for a company to remain publicly listed. HOWEVER, there
are existing proposals by the Exchange to increase this threshold to 15% by 2018. If
implemented, EDC will not pass the requirement and will have to be delisted.

EDCs disclosure also explicitly stated that there is a plan for EDC to eventually become a NON-
PUBLIC company in the near future which means EDC and its controlling shareholders wont be in
a position to make any effort to improve the public float post tender offer.

Possible Share Price Post-tender, prior to possible Delisting

There is no way to tell what the share price will be after the tender offer is done. One thing is for
sure though : a sharp drop in liquidity and tradeability. Experience tells us that illiquid stocks
tend to trade poorly, price wise. At the same time, post tender, there will exist only ONE logical
buyer for the shares, i.e., the major shareholders. A one sided market in this case a buyers market
will not be very conducive to sellers hoping for a higher price.

Delisted Shares

As minority investors in the stock market, I think you dont want to be left with shares in a delisted
company. Apart from the fact that you will be left without much options on who, when or what
price can you sell your shares to; a sale, if it does happen, will incur regular capital gains taxes of
10%. Plus all the moles and warts of going through the BIR and the SEC for paperwork that is
needed to effect the sale. Believe me, you dont want to go that slope of potential bureaucratic and
paperwork purgatory.

So, is there Money to be Made?

Possibly yes; you have just to carefully compute your net costs vis the tender price. Additionally,
you have to assess your risk tolerance for a possible loss on shares which may not be tendered, and
trade at a a lower price vs today post tender. A deliberate setting of your entry points and
assessment of selling at different prices at different allocations should do the trick.

Should you sell NOW?

For very large shareholders, there may be wisdom in selling some shares and letting go of the
additional gains at the tender price, to lessen the number of untendered shares that may get stuck
assuming of course the shareholders have decided to sell their shares.
For regular shareholders, it depends on how much you value the extra gains between price now
and tender price at this point 5% at gross versus the price and liquidity risk for remaining
untendered shares.

Quo vadis, FGEN?

Our next report would be centered on FGEN, and the effect of this exercise on the company.
Offhand, we like the idea, as it provides funds for FGEN to possibly finance a major capital
expenditure. It also takes out a layer of redundant listing, which can narrow the discounts paid for
listed assets and create more demand for FGEN shares itself.

Done with Integrity

Finally we commend the way that the deal was rolled out. The trading activity in FGEN, EDC and
FPH show that confidentiality was kept very high prior to the announcement, and that there were
no signs of any leak of information to the public that could have triggered insider trading activity in
the stocks. Kudos to the Lopez Group, and the Macquarie and GIC Groups as well.

Its not very often that we see in todays environment that non-public information are kept where
they should be, for the true benefit to accrue to the public and not to a few favored ones.

Call or email your PCG adviser directly for more details and other information
+632 661 3700 ( general line )
privateclients@colfinancial.com

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