Philippine Long Distance Telephone Company

September 10, 1998 PSE CIRCULAR FOR BROKERS NO. 2115-98 SUBJECT : Philippine Long Distance Telephone Company This has reference to the attached article published in the September 9, 1998 issue of the Philippine Daily Inquirer. Relative to the news report, Philippine Long Distance Telephone Company ("TEL"), in a letter to the Exchange of even date, clarified criticisms cited in the said article. Attached is a copy of TEL's letter to the Exchange. cdlex For your information. (SGD.) REYNOLD P. ONG Vice-President, Listings and Disclosure Group TELEFAX MESSAGE September 9, 1998 TO : MS. TRISHA ZAMESA Philippine Stock Exchange Listings & Disclosure Group Fax No. 6342051 FR : DENNIS DIMAGIBA This is in response to the article "PLDT 'poison pill' seen to benefit management" that appeared in the September 9, 1998 issue of the Inquirer. The article contains three basic criticism: (1) that the Shareholders Rights Plan ("SRP") is inimical to the interest of minority shareholders, while beneficial to present management headed by Mr. Cojuangco; (2) that it would prevent minority shareholders from enjoying any appreciation in their PLDT shares from a potential bidding war between interested buyers; and, (3) that earnings per share would be diluted and that it will dampen share prices. The SRP was designed and intended to protect shareholders, especially minority shareholders, from hostile and potentially abusive takeover, attempts by encouraging a potentially hostile acquiror to deal and negotiate with the Board of Directors, rather than gain control of the company through a regular or "creeping" tender offer, or through direct negotiations with a select shareholders group. These tactics could shut out or squeeze out minority shareholders, by not providing them the opportunity to receive or be offered the same price for their shares. It is not true that the SRP is highly beneficial to present management. The plan cannot prevent a take-over nor a proxy fight. In fact, the Georgeson survey found that companies with SRPs in place had a higher takeover ratio than companies without SRPs. As previously mentioned, the Plan only seeks to provide the Board, with bargaining power and leverage, to deal and negotiate with a potential acquiror, as well as sufficient time to consider other alternatives. Thus, when an agreement is reached with a potential acquiror, prior to the occurrence of the trigger, the Board has the right to redeem the rights and thereby switch off the Plan. Contrary to the allegation that the Plan would prevent a bidding war between interested buyers, the Plan will in fact provide sufficient time for other interested buyers to make a bid. When the Board is approached for negotiation on a possible takeover, the Board can solicit and consider other alternatives. Surprise takeovers, that "squeezes out" minority shareholders can be avoided. The objective of the SRP is to dilute the hostile acquiror, so as to discourage him from acquiring the company using abusive tactics. The dilution of the hostile acquiror is achieved by giving the other rights holders the right to purchase shares, while these same rights are voided in the hands of a hostile investor. In the event the Plan is triggered, shareholders who cannot afford to exercise their rights may sell those rights. The purchase price for each right is presently set at P4,000.00. Moreover, the Board can exchange those rights (held by persons other than the hostile acquiror) with common shares, at an exchange rate of one common share for one right, thereby diluting the holdings of the hostile acquiror. While earnings and price per share may be diluted, a stockholder (other than the hostile acquiror) would own more shares than before. Thus, the SRP if activated would in fact be accretive, rather than dilutive, to the minority shareholders. llcd We trust the foregoing clarifies the matter. Regards. PLDT `poison pill' seen to benefit management BY GIL C. CABACUNGAN JR. PHILIPPINE Long Distance Telephone Co. chief executive officer and president Antonio "Tonyboy" Cojuangco is firming up his control of the telephone giant through a rights issue or "poison pill" that would repel a hostile takeover or allow him to negotiate with a friendly investor. Corporate watchers were unanimous in their verdict that the poison pill was inimical to the interest of minority shareholders, the government and PLDT while highly beneficial to Cojuangco who managed to stay on as head of PLDT through three administrations despite holding only 9.8 percent of the company. The "poison pill" is a common strategy among American companies to ward off hostile buyers by making the acquisition of substantial blocks of shares in the company too expensive. In PLDT's case, the "poison pill" is in the form of a draft shareholder's right plan which allows shareholders to buy preferred shares that would give them the right to buy P4,000 worth of PLDT shares at half the price of the last trading price. The rights can be exercised if a new investor buys or makes a tender for at least 10 percent of PLDT or an existing shareholder with at least 10-percent share buys 5 percent of PLDT's stock. The board, however, reserved the right to revoke the rights by redeeming them if the investors were friendly to investors. A top Filipino-Chinese broker said that at its present form, the "poison pill" would prevent minority shareholders from enjoying any appreciation in their PLDT shares from a potential bidding war between interested buyers. A foreign brokerage house warned that the poison pill could likewise be "destructive" to minority shareholders specially those who cannot afford to exercise their rights. Since the rights offering leaves open the number of new shares that can be issued, shareholders would earn less from each share they hold specially if the PLDT rights were sold at very low prices and more shares would be issued. Earnings would still be diluted even if the cash raised would earn 20-percent interest. The rights plan would only work if all shareholders exercise their rights which is unrealistic. "It would create a vicious cycle dilution of shares leads to lower prices which further dilutes the shares which further dampen prices," a local stock analyst said. "The poison pill intended to kill potential takeover artists will eventually kill the company itself." Aside from the dilution, investor groups eyeing to control PLDT would be discouraged in pursuing their takeover plans because the risks were too high. The same broker said this could adversely affect PLDT in the long term because it badly needs fresh capital from new investors to reduce its debt and pursue its multibillion-peso expansion and modernization. Based on these actions, a local broker said: "Conjuangco is virtually perpetuating himself in power at the expense of shareholders and the company's future. The government is likewise affected by these moves because it cannot get a premium for its shares held by state pension funds that it plans to sell soon. This include the block of PLDT shares the government is contesting." Cojuangco's hold on to power at PLDT was still tenuous because some of President Estrada's advisers have coveted the telephone giant. Rumors that several potential bidders of PLDT have been trying to cut a deal with the government (which controls roughly 20 percent of PLDT) to oust Cojuangco have forced the latter to propose a poison pill. Philippine Telecommunications Investment Corp. (PTIC) is the single biggest shareholder of PLDT with 21 percent. Cojuangco owns 51 percent of PTIC while 47 is owned by the sequestered Prime Holdings Inc., which is allegedly owned by the Marcoses. A Supreme Court decision lifting the sequestration of Prime Holdings shares has further threatened Cojuangco's hold on PLDT. In its statement issued Sept. 8, PLDT said it hoped that the rights plan would induce potential acquirers to negotiate with the board, which will seek improved terms or consider other alternatives that may be more advantageous to the company and shareholders. Philippine Daily Inquirer September 9, 1998