PSE Circular for Brokers No. 1328-99

June 7, 1999 PSE CIRCULAR FOR BROKERS NO. 1328-99 June 4, 1999 PLDT SIGNS MOU TO ACQUIRE SMART AND INTRODUCE NTT AS STRATEGIC PARTNER Highlights PLDT has agreed in principle to acquire Smart by issuing 35.1 million new PLDT common shares to Smart's shareholders, including NTT and First Pacific Group (principally through Metro Pacific), representing 22.5 per cent of PLDT's outstanding common share capital as enlarged by the issue of shares. The shares will be issued at P1,080 per share, a premium of P25 to the closing market price as quoted on the Philippine Stock Exchange as at 4 June 1999 of P1,055 per share, valuing Smart at P37.9 billion. PLDT will also issue 12.2 million new common shares to NTT at a price of P1,202 per share, a premium of P147 to the closing market price as at 4 June 1999 of P1,055 per share, for cash consideration of P14.7 billion. cdlex Immediately following the transactions, NTT will hold 15 per cent of the issued common shares of PLDT and First Pacific Group will hold an attributable economic interest of approximately 23.0 per cent. PLDT will establish a strategic alliance with NTT, giving PLDT access to world class standards of technology, products and services. The parties have signed a non-binding Memorandum of Understanding which is subject to definitive documentation and formal approval by the respective boards of PLDT, NTT, Metro Pacific and First Pacific and is subject to certain shareholder, creditor and regulatory approvals and other conditions precedent. PLDT the Philippines' leading fixed-line operator, has today agreed in principle to acquire SMART Communications, Inc. (Smart), the country's leading cellular carrier, by using P37.9 billion in new common shares to Smart's shareholders, including Japan's Nippon Telegraph and Telephone Corporation (NTT) and First Pacific Group (principally through Metro Pacific). The shares will be issued at P1,080 per share, a premium of P25 to the market price as quoted on the Philippine Stock Exchange at the close of dealing on 4 June 1999, being P1,055 per share. In addition, NTT will subscribe for a further 12.2 million new PLDT common shares at a price of P1,202 per share, a premium of P147 to the closing market price as at 4 June 1999 of P1,055 per share, for a total cash consideration of P14.7 billion. PLDT has agreed in principle to establish a long-term strategic alliance with NTT, one of the world's largest telecommunications service providers, which will own 15 percent of PLDT's common share capital following these transactions. First Pacific Group will have an attributable economic interest of approximately 23.0 per cent following these transactions. These landmark transactions are expected to enhance PLDT's competitive position, enabling it to benefit from rapid changes in the international telecommunications environment by offering fully integrated services including voice, cellular, Internet and data transmission to a rapidly growing proportion of the Philippine population. In addition, the combination of Smart with PLDT's existing fixed-line and cellular businesses is expected to generate substantial cost and revenue synergies, while NTT will provide PLDT with access to world class standards of technology, products and services. LLjur The agreement in principle is reflected in the form of a non-binding Memorandum of Understanding. The parties intend to negotiate and complete binding documentation for the review and final approval of PLDT's, NTT's, Metro Pacific's and First Pacific's respective boards. Completion of the transactions is subject to various regulatory, creditor and shareholder approvals which are expected to be obtained before the end of 1999, and other conditions precedent. Acquisition of Smart On completion of the acquisition of Smart, PLDT will gain control of the Philippines' largest cellular operator, with a total of 846,000 cellular subscribers as at 31 May 1999. Smart also operates a fixed-line network in Northwestern Luzon, Central Luzon and South Metro Manila with 115,000 subscribers. Smart is currently approximately 56 per cent held by the First Pacific Group, and approximately 37 per cent held by NTT. To acquire Smart, PLDT will issue 35.1 million new common shares to Smart shareholders. The shares will be issued at P1,080, a premium of P25 to the market price as quoted on the Philippine Stock Exchange at the close of dealing on 4 June 1999 of P1,055 per share, valuing Smart at P37.9 billion. PLDT believes that it will be able to achieve substantial cost and capital expenditure savings and revenue enhancements by combining its operations with those of Smart. Potential areas for savings include: the integration of sales, distribution and customer care functions; better network utilization and better interconnection; integrated fixed-line operations, through PLDT managing Smart's fixed-line business; the elimination of duplication in administration and other corporate functions; and the combination of the IT functions of each of PLDT and Smart. These synergies are expected to benefit customers through improved and more efficient services, while shareholders are expected to benefit through increased profitability. Other benefits from the acquisition of Smart are expected to include: The ability to offer customers a broader range of integrated products and services, embracing fixed-line phones, a choice of cellular phone networks, internet services, and ultimately new technologies leading to the creation of a "one-stop shop" for all of its customers' communications needs. Enhanced expertise in such areas as marketing, advertising and customer service through the acquisition of Smart, which has grown to a substantial size from a start-up in less than five years principally through a focus on the needs of the market. LibLex Achieving greater exposure to the fast growing cellular segment of the telecoms market. Smart, which has delivered 261 per cent growth in revenues between 1996 and 1998, is expected to increase PLDT's earnings in the medium term. PLDT anticipates the cellular segment will continue to demonstrate growth rates ahead of the fixed line segment. Additional Subscription On completion of the proposed transactions, NTT will become a substantial investor and strategic partner of PLDT by exchanging its interest in Smart for shares in PLDT and through a further subscription for shares in PLDT for cash. Simultaneously with the closing of the Smart acquisition. NTT will subscribe for 12.2 million new PLDT common shares at a price of P1,202 per share, a premium of P147 to the closing market price as at 4 June 1999 of P1,055 per share, for a total cash consideration of P14.7 billion. This will take NTT's total shareholding in PLDT up to 15 per cent of the outstanding common stock. NTT will also enter into a strategic alliance with PLDT covering various commercial and technical services arrangements, the terms of which are currently under discussion. prLL As PLDT's strategic partner, NTT will have two seats on PLDT's Board, which will be expanded to 13 seats from 11. PLDT also expects to benefit from NTT seconding senior executives to advisory positions in various areas, including network development and operations, international customer service and new technology development (Internet, data and multimedia). Among the benefits that NTT is expected to bring to PLDT as its strategic partner are: Access to new technology, through NTT's leadership in such areas as data communications systems, multimedia, Internet Protocol, third generation mobile and others; Additional traffic through PLDT's network generated from within the NTT network; Enhanced relationships with suppliers, equipment manufacturers, consultants and telecom service providers. PLDT President and CEO, Manuel V. Pangilinan, said in Tokyo today: "These transactions mark a major development in the history of the Philippine telecommunications market. They ensure that PLDT will be positioned to take its rightful place as one of the region's leading telecoms players, bringing better, faster and more extensive services to customers and enhanced prospects to investors. "PLDT has been seeking a strategic partner that would best help enhance its fixed-line operations and improve its access to advanced technologies that are changing the way the world communicates. We have found the ideal partner in NTT, one of the world's largest telecoms groups, which has shown great commitment to the Philippines through its partnership in Smart with the First Pacific Group since 1995." NTT Executive Vice President, Masonobu Suzuki, said: "NTT is pleased to be able to invest further in the Philippines telecoms market through this strategic partnership with PLDT. We believe the prospects for the market, while it faces increased competition and increased technological changes, are extremely bright. NTT is looking forward to being able to make a significant contribution to PLDT and is looking forward to working with the First Pacific Group to ensure that PLDT remains the Philippines' leading telecoms company." LibLex PLDT is being advised by ABN AMRO in connection with the acquisition of Smart and the introduction of NTT as PLDT's strategic partner. First Pacific, Metro Pacific and other companies in the First Pacific Group are being advised by ING Barings and NTT is being advised by Credit Suisse First Boston. In addition, PLDT's Board has formed an independent special committee to review the acquisition, and Morgan Stanley Dean Witter has been engaged to advise the special committee.