MANILA, Philippines – Listed agribusiness Calata Corporation declined the offer of the Philippine Stock Exchange (PSE) to take the voluntary delisting route, saying conducting a tender offer to small shareholders is "grossly impractical" and "will kill the company."
Calata on Tuesday, October 17, told its shareholders in an open letter that the firm is not capable of conducting a tender offer because of insufficent earnings to cover the buyback of shares.
This open letter comes as a response to the PSE proposal for the company to delist voluntarily on the condition that it will conduct a tender offer to small shareholders.
PSE president Ramon Monzon had said Calata's plan to sell out to Millennium Global Holdings Incorporated in a bid to save the firm from being delisted "involves many uncertain things." This includes getting approval from the Securities and Exchange Commission (SEC) for the proposed increase in authorized capital stock to facilitate the entry of Millennium Global.
But for Calata, selling out to Millennium Global remains the best solution for its small shareholders. (READ: To save the firm, Calata to sell out to Millennium Global)
Calata said it has only "around P400 million in retained earnings as of end-2016," which is below the P1 billion needed to conduct a tender offer to small shareholders.
"It is grossly impractical because if the company will force itself to generate cash for the tender offer despite its limited retained earnings, it will have to sell its assets," Calata told its stockholders. "This would easily be a red flag for its existing business creditors such as the banking institutions."
Liquidating entire Calata?
Calata, which considers itself as a neophyte member of the PSE, also said that a tender offer will likely liquidate the entire firm, given the large public float, which is at 73.15%.
"To liquidate the company just because the PSE wants a tender offer is not only impractical but grossly unfair. It is unfair simply because a regulatory violation by a single shareholder should not be a justification to kill a legitimate business which has been profitably operating for the past decades," Calata said.
"Necessarily, once it is learned that a liquidation process is being done to generate cash for the tender offer, all creditor banks will call on their loan."
It was last July 22 when the local bourse initiated a delisting procedure against Calata for committing multiple violations of the PSE disclosure rules.
PSE had said Calata committed 29 violations of Section 13.1 of the disclosure rules from November 29, 2016 to June 20, 2017.
Section 13.1 provides that a listed firm should file within a 5-year period any direct and indirect ownership change of its directors and principal officers.
The local bourse added that Calata also committed 26 violations of Section 13.2, which prohibits directors or principal shareholders of a listed firm from trading the company's stock when material non-public information is obtained and up to two full trading days after the price-sensitive information is disclosed.
Calata management said asking it to conduct a tender offer appears to be a punishment for the company, which it said is "an innocent juridical person which did not have anything to do with the violation committed by the shareholder."
"Thousands of families are depending on the business which include not only its employees but hundreds of thousands of farmers and dealers who very much depend their livelihood on the business," Calata management said.
"This does not mean however, that the person responsible should go unpunished. It is simply stated that the tender offer being forced upon the company is not a win-win solution after all." – Rappler.com