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Razon vs. Lopezes: diverging governance practices, diverging fortunes

Razon’s international Container Terminal Services (ICT) bought back 5,970,990 ICT shares at 191 per share from subsidiary IWI Container Terminal Holdings. The transaction valued at 1.1 Billion Pesos was crossed at the Philippine Stock Exchange on 17 September 2021.

The transaction was brought about by the desire of the Razon controlled ICT to adopt the international best corporate governance practice of preventing a cross-shareholding structure.

ICT’s share price has gone up to the moon. It reached an all-time high of 213.60 and has been recently trading at the 200 level.

Razon’s avoidance of the cross-shareholding structure diverge from that of the Lopezes’. The Lopezes’ Lopez Holdings Corporation (LPZ) and First Philippine Holdings Corporate (FPH) just adopted the cross-shareholding structure.

Lopezes’ holding company LPZ controls 51.04% of FPH making FPH a subsidiary of LPZ. But then FPH, the subsidiary of LPZ, made a tender offer for 20% of the outstanding common shares of its parent LPZ. FPH was able to acquire 15.68% of the common shares of its parent LPZ through that tender offer. The transaction effected the adoption of cross-shareholdings.

Very puzzling why, the Lopezes controlled companies have to result to cross-shareholdings when such practice has been much condemned by good corporate governance practitioners around the world. What happened to company powered by good?

Worse is that the SEC is now releasing an exposure draft of the regulation for the avoidance of cross-shareholdings by publicly listed companies. Under the exposure draft the Lopezes will have to undo or negate the effects of the cross-shareholding structure otherwise they will have to face penalties which may include revocation of certificate of incorporation and/or dissolution of the corporation and forfeiture of assets.

FPH has been trading at around 74, way below its all-time high at around 112.40 while LPZ trades at around 3.11 below its all-time high of around 14.38 set in the year 1993.

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