Share Commentary: 8990 Holdings buys Cebu-based developer for 88 million pesos
8990 Assets [HOUSE 10.48 0.77%] [link] revealed that it has entered into an investment agreement with several shareholders to acquire 68% of the common shares of Piccadilly Premier Land (PPL), a developer of medium-sized affordable homes based in Cebu.
HOUSE said the transaction will “broaden its reach” through PPL’s existing portfolio of “affordable projects”.
HOUSE will pay its shares in cash once certain parcels of land have been transferred into PPL and HOUSE has completed its due diligence.
I like to see it when companies acquire businesses, projects or assets that exist outside of their immediate ecosystem.
That said, I don’t know anything about PPL or the shareholders involved, so there could be more overlap on this deal than is apparent at this time.
One thing to note here is that this is a stock purchase and not an asset purchase.
In an asset purchase, a company buys a “thing”, and when it buys that thing, the thing comes with a very limited set of potential problems that are usually well documented. In a stock purchase, a company buys a slice of the legal entity that owns all of the assets, as well as all of the liabilities.
The set of potential problems is no longer limited at all; Buyers need to think about existing liabilities as well as potential liabilities, and this is where due diligence becomes critically important.
Are there any current legal issues or even potential for legal issues?
Are there any problems with BIR, DOLE or customs?
Are there potential liabilities for environmental issues?
Is the company exposed to potential contractual disputes with suppliers and customers?
This “opening of the kimono” by PPL, where he reveals all of his books to HOUSE, can be a tense process.
This is likely the reason why there are far fewer arm’s length transactions made in the Philippines compared to more developed markets.
I’m crossing my fingers that everything goes well, because if it’s an arm’s length deal, I’d love to see more like this.