Investing in Philippines: Investing Word Of The Day: Buyout


Friday, March 9, 2012

Investing Word Of The Day: Buyout

With the recent talks of SMC buying a 40% shareholding at PAL you might think what the word "BUYOUT" means.

finalized with a handshake

Buyout is a purchase of a company's share where the buying party gains a controlling interest in the bought company. Such actions are made in order to help a company with great potential but lack capital, a good company whose potential are not fully utilize due to lack of funds, a competitor company that will lead to a bigger company gaining greater market share when they are combined, an expansion, or a diversification strategy of the acquiring company.

SMC's campaign to buy PAL is RSA(Ramon S. Ang)'s strategy in diversifying SMC from the food and beverage company to the power and transportation dynamo. Aside from RSA, MVP(Manny V. Pangilnan) of First Pacific has been investing in infrastructure businesses in the Philippines like tollways and hospitals. Lately MPIC(Metro Pacific Investment Corp) has completed purchase of Asian Hospital adding to their hospital corporations Makati Medical Hospital and Davao Doctor's Medical Hospital, Cardinal Santos Medical Center and 3 more others. 

Asian Hospital

Also for the past weeks the rumored buyout of GMA by TV5 has spiked the price of GMA in the stock market. But these rumors are both denied by MVP and GMA. Information about a buyout or acquisition must always be in secret specially when the companies involved are publicly listed companies or else they will be charged with "insider trading". 

Such buyouts can be made by share swap, bond issuance, or long term cash settlement.

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