Roxas & Company [RCI 3.50, down 4.6%; 28% avgVol] [link] disclosed that one of its independent directors, Aurelio Montinola, tendered his resignation in a letter dated May 6 after RCI sold 250 million treasury shares at a steep discount to a company owned and controlled by his wife, Ging Gonzalez-Montinola. The shares w ere sold to Ms. Gonzalez-Montinola’s company, Stonebridge Corp, at P2.00/share, which was a 38% discount to RCI’s pre-announcement price and a 47% discount to RCI’s market price in the trading session immediately following the announcement. The reason RCI listed for Mr. Montinola’s resignation was, “[N]o longer qualified to serve as an Independent Director.”
MB bottom-line: Independent directors are meant to be the “adult in the room” so to speak, to help ensure that a company operates in a legal and ethical way. They’re supposed to be free of any incentives that could cloud their judgment and cause the company to make decisions that favor non-public interests ahead of those of the public shareholder class. So, while it is entirely appropriate for Mr. Montinola to tender his resignation as an independent director after selling his wife a 9% stake in the company at a sweetheart price, it feels like there’s more to the story. How is it in the best interest of public shareholders for the management team to sell a massive block of shares at such a low price? They raised P500 million selling shares that were worth P800 million to P930 million. By selling to Mr. Montinola’s wife, the management team could have left P300 to P430 million “on the table”. That’s not very independent. The optimist in me had a sensible chuckle at the thought of Mr. Montinola being like, “Guys, please, let’s sell to anybody but my wife! Just think of my independence!”, and then the evil RCI board laughing maniacally as they called Ms. Gonzalez-Montinola on speakerphone in front of Mr. Montinola just to vex him and rub his face in the impropriety of the deal. Was the sale a “poison pill” to prevent Leandro Leviste from taking some control from RCI’s management group? In the end, I don’t care. This sale stinks for public shareholders and makes a mockery of what it means to be an independent director. Retail investors should take this as instructive of the limits of what may be expected from the protections afforded by independent directorships.
—
Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.
DigiPlus Interactive [PLUS 12.76, down 4.6%; 79% avgVol] [link] reported a Q1 net income of P2.0 billion, up 370% y/y from its Q1/23 net income of P0.4 billion. PLUS attributed its performance to revenue increases in all of its material business segments: retail games (+237%), casino rental income (+30%), hosting fees (+19%), and other leases (+12%). In the “FUTURE PLANS” portion of the Management’s Discussion and Analysis section, PLUS said that it “continues to execute on its… vision to be the number one digital entertainment group in the Philippines.” PLUS said that it is looking to boost customer retention through the use of “big data technologies” and plans to “embark on aggressive marketing efforts” to “enhance customer engagement.” The group’s Franchise Fees and Taxes expense grew 201% y/y to P6.8 billion, but this is the amount that PLUS pays PAGCOR and the government as a percentage of its gross gaming revenue.
MB bottom-line: It’s going to be interesting to see how PLUS handles the “problem” of making too much money. Will it treat these huge quarters like a windfall profit and distribute some large amount of it back to shareholders through a dividend, or will it look to put the money to work? If the management team wants to use the cash for something constructive, how will it configure its investment spend between research and development of its digital gambling platform and more conservative sources of recurring income like land and buildings? The FUTURE PLANS section tells me that they’re not finished building out PLUS into what it could be, so shareholders should probably expect the company to allocate a good amount to realizing that ambitious goal to become our “largest digital entertainment group”.
—
Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.