PAL Holdings (PAL) assured the Philippine Stock Exchange (PSE) there was “nothing wrong or extraordinary” about its decision to include drag-along and tag-along provisions in the bankrupt airline’s draft shareholders’ agreement.
PAL said the tag-along provision was “intended to protect minority shareholders, to ensure that they benefit from the sale by the majority s shareholders of its shares.”
Bilyonaryo Lucio Tan is expected to increase his controlling stake in PAL, the parent of loss-making Philippine Air Lines, from 80 percent to 89 percent with his infusion of P12.75 billion in new capital under the bailout plan of the flag carrier filed with the United States Bankruptcy Court.
“It compels whoever will buy the shares of the majority shareholder to also consider buying likewise the shares of the minority shareholder. The minority shareholder left on their own, may not be able to negotiate better terms or may have difficulty selling their shares. If they tag along with the majority shareholder, then they are ensured of getting the same terms as the majority shareholder,” said PAL.
The PSE asked PAL to clarify a report of Bilyonaryo.com article “Drag-along, tag-along: PAL to force minority shareholders to join Lucio Tan if he decides to sell bankrupt airline.”
PAL’s statement was silent on the drag-along provision which heavily favored Tans as it gave minority shareholders like ANA Holdings, the parent of Japan’s largest airline All Nippon Airways, with no choice but to sell their shares at the same price and form of payment as the PAL chairman, president and CEO.
The drag-along provision is provided under Section 6.1 Article VI of PAL’s propoaed shareholder agreement”
“If at any time a stockholder or group of stockholders that hold 50 percent or more of the issued and outstanding new common stock (collectively, the ‘dragging stockholder’) receives a bona fide offer from a third-party purchaser to consummate, in one transaction or a series of related transactions, the sale of the company (a ‘drag-along Sale’), the dragging stockholder shall have the right to require that each other stockholder (each drag-along stockholder’) participate in such transfer in the manner set forth in this section… Notwithstanding anything to the contrary in this agreement, each drag-along stockholder shall vote in favor of the transaction and take all actions to waive any dissenters, appraisal or other similar rights.”