Program to arrest declining share price under difficult environment
ALLIANCE GLOBAL Group, Inc. has increased the shares it plans to buy back from shareholders to P3 billion, a move meant to protect its shareholder value.
News of the planned repurchase pushed the stock market higher yesterday.
Alliance Global shares have lost about a third or P1.95 since the start of the year, while Megaworld has tumbled by almost two-thirds or P2.51.
Alliance Global is buying back P3 billion more worth of shares — P1 billion in shares of the holding firm and P2 billion in stockholdings of property unit Megaworld Corp.
The amount will be on top of the P2-billion share buyback program the Andrew Tan-led company announced in July, Alliance Global told the stock exchange yesterday. Megaworld will buy back the shares over the next one and a half years.
Alliance Global is among several companies that have announced plans to buy back shares believed to be undervalued under a difficult economic environment. It appeared to be sending a signal that it can still generate cash under the present environment, an analyst said.
Buying back shares is also a way of telling investors that it is a good company to put one’s money in, he added. "Investing in your own company sends a signal to investors that the company is confident about its own growth prospect," the analyst said.
Share prices of Alliance Global went up by 7.14% or 25 centavos to P3.75, while Megaworld gained 9.09% or 12 centavos to P1.44.
Also yesterday, listed Alaska Milk Corp. said it would hike its share repurchase budget by half.
In a disclosure, the Uytengsu-led company said its board had approved a P100-million increase for its buyback program to P300 million. Its share price was unchanged at P4.90 yesterday.
Alaska posted a weaker second-quarter performance, with net income dropping by more than half year on year to P102 million due to higher raw material costs and a weaker peso.
This brought first-half profits to P188 million, only about half of the year-ago figure. Alaska President and Chief Executive Officer Wilfred Uytengsu, Jr. earlier said profits would be flat this year due to higher tin plate prices, which could raise packaging costs by as much as 40%.
The analyst, requesting anonymity, said a company usually buys back shares from stockholders if it feels it is undervalued.
"The program is also a way to send a message to investors that [the company] would not allow the current market to lessen the value of its stocks," he said. It is also a strategy to avoid a hostile takeover, with low stock prices creating a temptation for investors.
It is not without risks, however. A buyback program may also take away stock liquidity, making it harder for the stock to climb due to minimal trading.
Best option
"In the current environment, we believe we can enhance shareholder value by buying our own shares," Alliance Global Chairman Andrew Tan said.
"Our P5-billion share buy-back program for both Alliance Global and Megaworld is our best option under the present circumstances," he added.
Alliance Global has P32 billion in cash, 16% or P5 billion of which has been set aside for the share buyback program.
The holding company is into property development and investment through Megaworld; food and beverage through Emperador Distillers, Inc.; and fastfood restaurants through Golden Arches Development Corp., which owns McDonald’s.
The group earlier ventured into hotel management and tourism through unit Travellers International Hotel Group, Inc.
The latter has signed a deal with Star Cruises Limited to develop two large-scale leisure and entertainment cities in Metro Manila. Mr. Tan earlier said the next few years would be "very exciting" for Alliance Global as it continues to grow its businesses and charts a new path as a major tourism player.
"This share buyback program clearly underscores our confidence in our strategy and the sustained long-term growth of Alliance Global," the businessman said.
Alliance Global is expecting another banner year, with net profit projected to go up by almost a fifth to P3.9 billion from a year earlier.
Other companies that have announced plans to buy back shares include Ayala Land, Inc., which has allotted P3 billion for the program; Pacific Online Systems Corp., which will buy back P2 million worth of shares; and the Philippine National Oil Co.-Energy Development Corp., which has set up an employee stock option plan by buying back P4 billion in common shares. — with Don Gil K. Carreon
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