Merger to create biggest cement firm

September 16, 1999 PSE CIRCULAR FOR BROKERS NO. 2317-99 Merger to create biggest cement firm The boards of directors of Hi Cement Corporation, Davao Union Cement Corporation and Bacnotan Cement Corporation have unanimously approved a plan to merge the three companies on 01 January 2000, following approval of shareholders and the Securities and Exchange Commission. LexLib The transaction will be an all-stock transaction, with the surviving company, Hi Cement, issuing shares to the shareholders of Davao Union and Bacnotan Cement. For purposes of the merger, the stocks of Hi Cement, Davao Union and Bacnotan Cement are valued at P1.83, P1.05 and P6.98 per share, respectively. Hi Cement will issue 571 shares for every 1000 Davao Union shares, and 3815 shares for every 1000 Bacnotan Cement shares. The merged entity will be owned 45%, 39% and 16%, respectively, by the existing shareholders of Hi Cement, Davao Union, and Bacnotan Cement. After the merger, Union Cement Corporation (UCC), the cement holding company of The PHINMA Group, will hold approximately 65% of Hi Cement. Other large shareholders will be Sumitomo Corporation and Sumitomo Osaka Cement Corporation of Japan and FLS Industries of Denmark, the world's biggest producer of cement manufacturing equipment. The public will own approximately 23% of Hi Cement. The merged entity will assume all-outstanding debts of the three existing companies, which amount to approximately P3.1 billion, P3.4 billion and 1.3 billion for Hi Cement, Davao Union and Bacnotan Cement, respectively as of June 30, 1999, inclusive of the recently issued convertible notes of the three companies. cdlex Holders of convertible notes of Bacnotan Cement or Davao Union may, before the merger, opt to convert their notes to common shares of these companies and subsequently participate in the share swap with Hi Cement. Alternatively, they may convert their notes to Hi Cement shares after the merger, during the conversion period of the notes. The merger will create the largest cement company in the Philippines with an annual clinker capacity of 5.4 million metric tons. It will have production facilities across the archipelago, allowing the merged entity to benefit from the expected cement market growth across the Philippines. Bacnotan Cement has a plant in Northern Luzon and another in Central Luzon. The Hi Cement plant is adjacent to the National Capital Region. The Davao Union plant is in Mindanao. The merged entity will also benefit from economies of scale and flexibility in marketing and distribution. The combined company has a market capitalization of P7.7 billion as of 13 September 1999, making it one of the largest industrial companies listed on the Philippine Stock Exchange. JP Morgan acted as financial advisor for Bacnotan Cement, Davao Union and Hi Cement on the merger. cdll