In a move to assert control of the giant power distributor's board, the Lopez family is weighing various options. One of them is an alliance with five unnamed foreign companies that would buy out the government's stake in Meralco.

In the run up to the May 27 annual stockholders meeting, the Lopez family is scrambling for partners to buy out the stake of the government pension fund, GSIS, whose head, the swashbuckling Winston Garcia, sits on the Meralco board.

The Lopez family has a 33.4 percent stake in Meralco through First Philippine Holdings Corp. (FPHC), while GSIS and other government entities have 35 percent.

While a proxy fight between GSIS and the Lopez family for the hundreds of shareholders that own the remaining 32 percent is reportedly underway, bagging an investor, or a group of investors, to buy out the government's stake is less tedious and—given the approaching May 27 deadline—quicker for the Lopezes.

For the Lopezes, it pays to have a party in the board friendlier to them than Garcia, who has engaged the family in a public war over allegations of irregular transactions between Meralco and other family-controlled businesses, including the power generation companies that sell to Meralco.

Earlier, it was rumored that the Lopez family was eyeing an alliance with food manufacturing giant, San Miguel Corporation, as potential buyer of the government stake. But San Miguel president Ramon Ang denied it.

Foreign investors

In the sidelines of FPHC's annual stockholders meeting Monday, FPHC president Elpidio Ibañez declined to name the foreign investors but said that all of these companies have conducted research about Meralco. He hinted further that the interested firms are known investment fund managers and energy companies.

Ibañez said that as a utility company, Meralco is considered a defensive stock that hold up in hard times because demand does not decrease dramatically as it may in other sectors. "Given conditions today, investors are moving away from more risky investments and lower yielding [investments] given that foreign interest rates are also low," he told reporters.

Meralco Chairman Manolo Lopez, however, did not say if any deals have already been firmed up with the foreign investors. "As to how serious they are, I am not sure," he said.

In various abs-cbnnews.com/Newsbreak interviews with GSIS's Garcia, he said he is willing to sell the government's stake "at the right price."

Meralco's stock price has gone through some beating since the intense squabble between Garcia and the Lopez family and allies broke out in late April. At that time, Meralco stocks cost P81. In the past days, Meralco stocks were hovering at P69, almost a 15 percent drop. 

Highly leveraged

FPHC Chairman Oscar Lopez has repeatedly said that they don't have the financial capability to solely acquire the government stake in Meralco.

The government stake is estimated to be worth a staggering P27 billion.

FPHC is already highly leveraged with debts acquired when it previously bought more assets in the energy sector to beef up its portfolio and make it the largest vertically-integrated power generation play in the country. In 2007, an FPHC subsidiary bought the government's stake in listed company, PNOC-EDC, the country's biggest geothermal power producer, for about P58.5 billion.

Also in 2007, FPHC again forked more than P2 billion when it bought the Meralco stakes of its Spanish partner and of the Meralco retirement fund to consolidate its interest in Meralco to 33.4 percent, just before GSIS upped its shareholdings to 33 percent.

Both moves were partly funded by loans.

In the FPHC's first quarter 2008 earnings report, its bottomline decreased by 26 percent to P2.1 billion compared to the same period last year due, to higher finance costs. Its debt level increased by 189 percent to P123 billion.

Utility companies, like Meralco and FPHC, have high capital requirements, thus they generally source debt financing. But since they are in a highly regulated environment where charges to end-consumers are always kept in check, debt levels need to be managed since finance costs eat into their bottomline. (abs-cbnNEWS.com/Newsbreak)

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