GMA-7 stock sizzles amid talk of sale

Katherine Visconti

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Year to date stock in GMA-7 has shot up 61%, more than twice the growth of the Philippine Stock Exchange index and at least thrice the increase in rival network ABS-CBN's

MANILA, Philippines – Persistent rumors that the group of TV5 chair Manuel V. Pangilinan and the GMA Network Inc. controlling owners are in talks for a deal have helped boost the stock price of the 2nd biggest television network in the country.

GMA-7’s stock was only trading at P6.50 a share on December 27, 2011 when the newest set of deal talks commenced and picked up by social media users, making it one of the top trending topics on Twitter in the Philippines.

Since then the stock has grown nearly 64%, becoming one of the top performers in the local exchange. GMA-7 closed at P10.64 per share on Friday, July 6.

GMA-7 has not made public a strategy or a specific corporate event intended to drive the stock so high. Rather, the only significant news that could have excited investors into snapping up the stock despite the bull run was the anticipated merger between TV5, the third largest network and GMA-7, the second largest.

Consider how news related to the deal corresponded to spikes in share price:

  • Weeks after Twitter went abuzz on the reported negotiations, GMA Network CEO Felipe Gozon said during the network’s January 18 trade launch he was open to selling shares at the right price. From P6.67 a share that Wednesday, the stock climbed to P6.88 on Thursday, broke to P7.28 on Friday and after the weekend shot all the way up to P8.06 on Tuesday. The stock climbed 21% in just 4 trading days.
  • Businessman Manuel V. Pangilinan confirmed his interest in GMA-7 on March 1 and the next day, GMA-7 shares broke to P10 for the first time in the year.
  • GMA-7’s stock wavered below P10 in April, but succeeding statements by other network bosses during the annual stockholders meeting on April 20 and disclosures to the stock exchange, including the one on April 27, focused on how the two camps have not reached a deal price yet. Helping sustain interest on the GMA-7 stock was the statement of conglomerate San Miguel Corp’s president Ramon Ang on May 11 that a price offer would not just cut a deal but personal relationship, too, stressing he has close ties to the triumverate families in GMA-7. The network’s former chair Menardo Jimenez, in fact, sits on San Miguel’s board. GMA-7 stock moved dropped to P9.5 the following trading day, then hiked to P9.18 on May 16 then P9.62 the day after, pushing it back to an upward trajectory since. 
  • The stocks hit a fresh high of P10.26 on June 28, the day after Pangilinan said he would pay cash to acquire GMA, which would force him to offer minority shareholders the same price the controlling families would get. In July 3, it hit a record high of P11 per share.

From January 2 to July 6, the stock price has increased 61%. That beats the 22% growth achieved by the Philippine Stock Exchange index, the bellweather for general investor sentiment, and the 18.8% growth seen in rival network ABS-CBN Corporation during the period.

The market capitalization of GMA Network Inc. zoomed from P21.8 billion when the news about a deal started, to P35.8 billion seven months after. The market worth of the network added a cool P14 billion.

To individual investors, that means those who bought P50,000 worth of GMA stocks 7 months ago now have shares worth P80,500.

Three analysts recently polled by Reuters said stock in GMA Holdings was the most expensive among the 39 companies in the Philippines they tracked in the Philippines. The analysts  said the intrinsic value of the stock is closer to P7.09 per share and that earning quality is low, which suggests gains aren’t sustainable.

The general problem with stocks swelling on news of a deal rather than a company’s internal strength is that the company doesn’t have a basis for maintaining the high price after the deal.

Last year, the profitability of local TV networks was thrown into question after all 3 major stations were seen bleeding profits. GMA-7’s earnings plummeted 39% to P1.72 billion in 2011 as advertising sales plummeted and operating expenses increased, while ABS-CBN’s net income dropped 25%. TV5 actually doubled its losses, ending 2011 down P4.14 billion.

Two of the 3 analysts in the Reuters article gave a strong sell recommendation while the 3rd advised holding on to the stock.

RECORD HIGH. This graph from the PSE shows the stock price of GMA Network, the operator of GMA-7, in the past 3 years or since 2010. Spikes only occured when talks of a deal with Pangilinan group started and continued this 2012.

MORE TRADES. The interest in GMA stocks also spiked only after Pangilinan said he wants to buy the network. This graph shows the volume of trades for the past 3 years.

Valuing GMA-7

The last time Pangilinan negotiated attempted to buy 67% of GMA-7 for P8.5 billion the deal was bogged down by pricing and funding issues. GMA-7 chairman Felipe Gozon is still suggesting price could be a sticking point. “It’s always the price,” he said in May.

The families in control of GMA-7 – the Duavits, Gozons and Jimenezes – have a collective stake of over 68%. At Friday’s close of P10.64 per share, these families’ stake are now worth a total of over P24 billion. That would equate to a 123.49% premium, based on the supposed intrinsic value of P7.09, it’s a 235% premium.

A recent report said the two camps are closing in on a deal price P52.5 billion for an 80% stake. GMA Network did not corfirm nor deny this valuation that reportedly considers the firm’s enterprise value, which factors in preferred stocks, debt and cash reserves usually not captured by mere market capitalization.

Bidding war?

San Miguel, however, denied that it had made an offer combining cash and shares. 

Having multiple parties expressing interest in a target firm could drive the deal higher. Gozon hinted on a bidding war when he said the network has caught the eye of other companies besides Pangilinan’s TV5.

“Definitely if you have more than one party interested the price will go up,” said April Lee-Tan, a certified financial analyst and the vice president of CitisecOnline.

“Maybe since there are two parties bidding for it the valuation will go up. It’s good for shareholders of GMA,” she said.

“But as for the Ramon Ang group or the PLDT group we don’t know what they’re thinking of, what type of synergies they actually see and why they want to bid for the company at a higher value,” said Lee-Tan.

The final price, however, is just one aspect of the country’s most-awaited business deal this year. How the two biggest media networks will move forward — deal or no deal — is another. –

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