Cement Merger Approved

November 26, 1999 PSE CIRCULAR FOR BROKERS NO. 3029-99 Cement merger approved The shareholders of Bacnotan Cement Corporation, Davao Union Cement Corporation and Hi Cement Corporation have unanimously approved the merger of the three companies effective January 1, 2000, to create the country's biggest cement company with about 25% of total Philippine production capacity. The stockholders gave their unanimous approval at their respective annual meetings this week, at which the three companies reported significantly improved financial results in July-September 1999 as compared with the year-before period. The merger will be a share-for-share swap transaction, with Hi Cement as the surviving entity. Its Board of Directors and shareholders have unanimously agreed to rename Hi Cement as Union Cement Corporation. The three companies produce the "Union" brand of cement. LibLex Under the approved plan, Hi Cement will issue 571 shares for every 1,000 Davao Union shares and 3,815 shares for every 1,000 Bacnotan Cement shares. Existing shareholders of Hi Cement, Davao Union and Bacnotan Cement will own 45%, 39% and 16% of the merged company, respectively. LibLex After the merger, the public will own approximately 26% of the merged entity. The PHINMA Group and Holderbank Financiere Glaris, Ltd., the world's largest cement producer, will jointly own about 62%. Other large shareholders include the Sumitomo Corporation and Sumitomo Osaka Cement Corporation of Japan, and FLS Industries of Denmark, the world's biggest producer of cement manufacturing equipment. The merged company will have an annual clinker capacity of 5.7 million metric tons a size that will enable it to compete effectively in the local market with the international cement companies that have acquired substantial interests in Philippine cement companies. It will have four plants in La Union, Bulacan and Davao, four bulk terminals, and three ports. It will be the only Philippine cement manufacturer with a truly nationwide marketing and distribution network with exports from its Davao plant. LibLex The merger will rationalize operations-of the nationwide company, and even out growth and earnings potentials, given varying market conditions in the different parts of the country. For shareholders, the merger will bring benefits in terms of increased company size, larger market capitalization, improved stock liquidity, and therefore the potential for stock market upgrading of the shares. cdll Based on the balance sheets of Bacnotan Cement, Davao Union and Hi Cement as of June 30, 1999, the merged entity has total assets of P21.3 billion and total stockholders' equity of P12 billion. The significance of the merger came at the shareholders' meetings even as the three companies that will be merged disclosed their latest available financial data showing major improvements in market prices and financial results. llcd Hi Cement reported a net income of P23 million for July-September 1999, as compared with a net loss of P228 million in the year-before period. Bacnotan Cement, which serves mainly Northern and Northeastern Luzon, reduced its net loss to only P25 million in the same quarter from P126 million a year before. Davao Union, which serves the Visayas and Mindanao, also reduced its net loss to P44 million from P187 million. All three companies registered significant cash flows from operations. Hi Cement shareholders approved a board resolution to increase the company's authorized capital to P10 billion from P4.27 billion in order to implement the approved merger. LibLex Moreover, in the same shareholders meetings, the change in their accounting period from one starting in July to one based on the calendar year, effective January 1, 2000 was unanimously approved.