The month-long public row between two major shareholders—the government and the Lopez family—will come to a head in the shareholders meeting of Meralco today (May 27). And attendees can expect fireworks.

The core of contention will be on the validation process of the proxies.

Winston Garcia, the aggressive president and general manager of the Government Service Insurance System (GSIS), a Meralco shareholder, will most likely complain that the process of validating the proxy forms was manipulated.

In an interview with abs-cbnnews.com/Newsbreak, Garcia claimed that the other major shareholders of Meralco, the Lopezes, are "employing every dirty trick in the book. Management, which the Lopezes control, is manufacturing proxies to appear that they have more votes to reduce our representation. They are rigging the process."

But Manolo Lopez, Meralco's chairman and CEO, just shrugged it off. He told abs-cbnnews.com/Newsbreak last Saturday, while he was attending to preparations for the May 27 meeting at the Meralco Theater, that the proxy validation process was transparent. "We have nothing to hide. The process is within the bounds of the law and not based on anyone's whims."

About 4,433 proxy forms were submitted to Meralco's corporate secretary office last May 17, the deadline.

The validation process started last May 22 and ended on the eve of May 25. A battery of lawyers from both sides—reportedly 15 from GSIS and 40 from Meralco—took part in the validation process.

Of the 4,433 proxy forms, 99.7 percent, or 4,418 forms were disputed on various grounds, and 448 proxies were already invalidated. Proxy givers should be stockholders of Meralco as of March 2008, should have properly signed the forms, and in cases of those provided by corporations, a board resolution should have been attached.

Up in arms

But the disputes were mostly on questions raised by GSIS lawyers on how Meralco management solicited proxies. Garcia said that Meralco management, given its advantage of having more access to the records of the company, is not allowed to explicitly solicit proxies from other minority shareholders.

In the board meeting today, Garcia again was up in arms since he wanted to have access to the list of proxies. The proxies will be added to the equivalent votes that the government's 35 percent is entitled to.

GSIS, together with other government entities, has 35 percent stake in GSIS, while the Lopez family, through their holding company, First Philippine Holding Corporation (FPHC), has 33.4 percent.

Garcia wanted to know how many seats in the board the government is entitled to, which will be determined by the total votes he could cast.

The Lopez-controlled board did not budge. A board director present in this morning’s meeting told abs-cbnnews.com/Newsbreak in confidence that they don't have the authority to release the list of shareholders who, through their proxies, are authorizing either the Lopezes or Garcia. "That's private information which the proxy giver may not want us to divulge. The shareholder might get back at us because he does not want Garcia, for example, to know that he gave his proxy to the Lopezes, " the board director said.

Both Garcia and Manolo Lopez expressed confidence that they have the support of majority of the shareholders through the proxies.

Brokers: proxies to GSIS, Lopez

Garcia's GSIS is one of the biggest clients of brokerage and investment firms in the country. GSIS is so cash-rich after it unloaded billions-worth of investments in various entities, such as Equitable-PCI Bank (now Banco de Oro) and San Miguel Corporation.

In the past, most, if not all, the proxies were given to the Lopezes. But because of the events and issues that cropped up in the run up to the stockholders meeting tomorrow, brokers tell abs-cbnnews.com/Newsbreak in confidence that some of them had to give their proxies to GSIS or halved their proxies to both GSIS and the Lopezes, for fear of losing their business with GSIS.

A source from Meralco said that their ultimate fear in providing Garcia the proxy list is that Garcia might use its financial muscle with those who did not give their proxies to GSIS and ask these shareholders to be present in tomorrows meeting, invalidate their previous proxies, and authorize Garcia to vote their shares instead.

But Garcia is unperturbed. He said he only wants to get a copy of the proxy list because the validation process is "unfair."

Garcia points to the fact that Atty. Anthony Rosete, a Meralco employee for almost two decades, is in charge of the proxy validation process. He said Rosete's role already says much of the efforts of management to rig the proxy validation process.

"They [the Lopezes] know how many proxies we have. They know how many they have. But it is unfair because we don't know how many proxies they have," Garcia said.

Rosete, the acting corporate secretary, took over from former Justice Quiason, whom Garcia earlier accused of being incompetent and non-transparent. Quiason resigned in April.

Corporate secretary

Who the corporate secretary will be during and for the processes leading to the May 27 stockholders meeting was a major issue among the board members in their May 15 meeting.

Eventually, both camps agreed to have former Supreme Court Justice Jose Vitug in charge. In a chance interview at the Meralco Theater Saturday, Vitug told abs-cbnnews.com/Newsbreak, that he agreed to be secretary only during the May 27 meeting. "I did not agree to be a corporate secretary. That was clear when I took on the task."

He said that as a former Supreme Court justice and currently the chairman of the Philippine Stock Exchange, in which Meralco shares are listed, "I know that it is not appropriate for me to be involved in management-related tasks, like being a corporate secretary."

Vitug acts as a consultant to Meralco on legal matters and is slated to be on the board of ABS-CBN, the parent company of ABS-CBN Interactive which runs this website.

During the validation process, Vitug refused to take charge. Garcia said he called Vitug who was in his Meralco office and asked why he is allowing Rosete to preside over the validation.

Garcia said, "Precisely, I acceded to Vitug being the secretary of the meeting because part of his job was to make sure all the antecedent actions, including the validation process, will be his." To Garcia, Rosete will not be partial in the validation process.

But the phone conversation between Garcia and Vitug apparently turned ugly, with Vitug eventually resigning from his post as secretary of the meeting.

Thus, Rosete has been in charge of the validation process. The fate of the 3,970 valid proxy forms will be in his hands. And with Vitug out of the picture, Rosete will also be the secretary during the meeting itself.

One of his crucial tasks on Tuesday will be to decide on various legal issues. It is expected that Garcia will most likely raise several during the meeting.

Rafael Andrada, Meralco treasurer, said: "Garcia brought all these upon himself."

What will happen tomorrow?

The stockholders meeting at the Meralco Theater will commence at 9:30 am, after all the shareholders, members of the media, analysts, and other spectators, have duly registered.

Just like a typical annual shareholders meetings, the chairman and president will make their report on the performance and prospects of the company, the audited financials will be approved, then directors to the board will be elected.

In the past, elections for board directors were smooth. There was only one slate, and all 11 in the slate were voted in.

In the past, the national government would just send a list of its nominees, which would be included in the slate.

One is elected to the board based on shareholdings and, if available, proxies from other shareholders who cannot be present at the meeting. These proxies authorize someone or a group to vote on their behalf.

Because there is no common slate now since there is a dispute between the two major stockholders, shareholders need to cast their votes tomorrow. One share is equivalent to one vote.

A ballot box will be passed around to collect votes of people who have their own shares and those who are representing shareholders who gave proxies. SGV&Co, the auditor designated for the meeting, will then count the votes.

Change in management?

A seat on the board is equivalent to roughly about 101.3 million shares, based on abs-cbnnews.com/Newsbreak's computation, which assumes that about 80 percent of the shareholders either through their proxies or their actual presence, are represented.

In the past, the Lopezes had proxies to vote most, if not all of the 236 million shares, based on abs-cbnnews.com/Newsbreak's computation. This allowed them to have six seats in and control of the board.

Garcia, despite his pronouncements that he might not be elected to the board, is expected to already have one secure seat since GSIS's 35 percent stake is already entitled to at least three seats. Garcia is listed as one of the nominees of government.

One of the more important items that the newly elected board tomorrow will vote on is whether there will be a change in management.

It has been said that Garcia is after the head of Manolo Lopez, who is currently president, Jesus Francisco, the chief operating officer, and Andrade, the treasurer.

The change in management has been Garcia's battlecry since the boardroom row became public when abs-cbnnews.com/Newsbreak broke the story in April 29.

Garcia said replacing the three could mean more operating efficiencies, which would then result in lower electricity distribution costs and lower electricity bills for consumers of Meralco.

But to effect a change in management, Winston needs six votes. Assuming that the independent director will be voting with him, then he will just need five votes.

Proxies determine votes

In other words, in the nine seats in the 11-man board, the proxies will determine who will get the fifth vote. Currently, GSIS has four, and Lopezes have five.

There are 14 nominees to the board. The Lopezes and the government each has six nominees. The remaining two are reserved for independent directors.

Since the row became public, Washington Sycip, Federico Puno, both incumbent directors, and government nominee Antonio Garcia Jr., have withdrawn their nomination.

The nominees of the Lopezes are: Manolo Lopez (current chairman who will preside over the meeting on Tuesday), academic Felipe Alfonso, current president Jesus Francisco, former elections commissioner Christian Monsod, FPHC head Peter Garrucho, and former prime minister Cesar Virata. Previously, Virata was a government nominee but has since changed sides after he was hired as Meralco consultant.

The nominees of government are: Garcia, GSIS chairman Bernardino Abes, former Pangasinan governor Generoso D.C. Tulagan, stockbroker and STI College owner Eusebio Tanco, and lawyers Daisy Arce and Jeremy Parulan.

Independent directors

Two slates in the board are reserved for independent directors, as required by the Corporation Code. They only need one vote each.

The votes of the two directors are crucial in swinging the votes on who will have majority control of Meralco.

The practice in Meralco was just for the major shareholders—the Lopez and the government—to each propose an independent director acceptable to both parties before the stockholders meeting.

Since the board row, Washington Sycip withdrew his nomination after a dinner with Garcia. The Lopezes named former Supreme Court Chief Justice Artemio Panganiban as independent director.

Initially, Garcia contested Panganiban's partiality because he is also an independent director in the FPHC board. But eventually, he acceded. The father of Garcia strongly supported the nomination of Panganiban to the Supreme Court. Garcia, in a previous interview, said Panganiban is a "decent man."

Garcia then sent word to the Lopezes that he wants Vicente Panlilio, former banker and ally in Equitable-PCI Bank (now Banco de Oro), another board row where he figured, to be the other independent director.

Initially, the Lopezes did not agree because Garcia already included Panlilio in the list of government nominees submitted to the SEC way back in March. They contested then that Panlilio could not be independent director since his nominator, GSIS, holds about 20 percent in Meralco. According to SEC rules, the nominator of an independent director must not have more than 10 percent stake in the company.

Nonetheless, efforts then to pacify both camps to fill the slots for independent directors somehow worked. The Lopezes eventually agreed for Panlilio to be the second independent director.

"It was a concession, but Mr. Panlilio is a good person. We hope he is upright in how he does things," Andrade said.

Vitug said he will still attend the Tuesday meeting. "It is not often that we have meetings as eventful as this. There should be a lot to learn from this." (abs-cbnNEWS.com/Newsbreak)

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