DMCI Holdings Inc. (stock: DMC), a leading Philippine conglomerate, has received approval from its shareholders to issue P10 billion worth of preferred shares to its affiliate Dacon Corp. The capital raised will be used to finance the acquisition of a majority stake in Cemex Holdings Philippines Inc. (stock: CHP), a strategic move to expand DMCI’s business portfolio.

DMCI plans to issue 10 million Class B preferred shares priced at P1,000 each. These shares come with a fixed annual dividend rate of 4%. DMCI’s chairman, Isidro Consunji, emphasized that this issuance would not dilute the voting power of common shareholders, making it a balanced solution for raising funds while protecting current investors' interests. (For investors, preferred shares typically offer priority when it comes to dividend payouts, but they do not carry voting rights—meaning holders won’t participate in company decisions like electing board members. Unlike common shares, preferred shares appeal to investors looking for more stable returns, especially since they guarantee a fixed dividend.)

The P10 billion raised will fund DMCI's acquisition of a 56.75% stake in Cemex Holdings Philippines (CHP), a company engaged in cement manufacturing. This acquisition is part of a broader agreement where DMCI, along with its affiliate Dacon Corp. and subsidiary Semirara Mining and Power Corp., will acquire Cemex’s controlling parent company, Cemex Asian Southeast Corp. (CASEC). The entire deal is valued at $305.6 million.

Cemex is a key player in the cement industry, and this acquisition is seen as a strategic move for DMCI to diversify its portfolio. Currently, DMCI’s business includes real estate, construction, mining, and power generation. Adding a cement manufacturing company will further strengthen its position in the construction sector.

As part of the acquisition, Dacon Corp. has initiated a mandatory tender offer to buy the remaining 10.14% of CHP shares from minority shareholders. The offer is priced at P1.42 per share, a price declared fair by business advisory firm PwC. The tender offer will run from October 23 to November 21, 2024.

This tender offer ensures that minority shareholders are treated fairly, giving them an option to sell their shares at a competitive price. This process is a standard requirement in major acquisitions to protect smaller investors.

DMCI aims to keep Cemex listed on the Philippine Stock Exchange (PSE) even after the acquisition is completed. However, if Cemex’s public float (the percentage of shares available to the public) drops below the required 10%, Dacon Corp. plans to sell a portion of its shares to restore compliance. The company has a six-month window after the acquisition to make this adjustment, ensuring that Cemex remains a publicly traded company.

DMCI’s management has been clear that the issuance of preferred shares will not affect the company’s existing dividend policy for common shareholders. DMCI remains committed to distributing at least 25% of its previous year’s core net income to common shareholders.

The preferred shares also come with a convertibility feature, allowing Dacon Corp. the option to convert its holdings into common shares at a future date. This offers DMCI flexibility in managing its capital structure, ensuring that the company optimizes financing costs while maintaining a strong balance sheet.

Cemex Holdings is one of the largest cement manufacturers in the Philippines, ranking as the country’s fourth-largest cement player. The acquisition strengthens DMCI’s position in the construction industry, complementing its other ventures in real estate and infrastructure development.

Additionally, the Philippine Competition Commission has already cleared the acquisition, allowing DMCI to proceed without regulatory hurdles. This acquisition is expected to close by the end of November 2024, with the transition period extending into 2025.

• DMCI will issue P10 billion in preferred shares to raise funds for the Cemex acquisition.
• The preferred shares come with a 4% fixed annual dividend and will not dilute the voting rights of existing common shareholders.
• Dacon Corp. is offering to buy out minority shareholders at P1.42 per share through a mandatory tender offer running from October 23 to November 21, 2024.
• The acquisition positions DMCI for further growth by adding cement manufacturing to its diverse business portfolio.
• DMCI aims to maintain Cemex’s listing on the Philippine Stock Exchange, ensuring compliance with public float regulations.

For DMCI and its shareholders, the acquisition of Cemex represents a significant strategic move, aligning with its long-term growth objectives while optimizing financial costs and shareholder value.