Yadao, Princess Aubrey R.

AE 312 – 1253
Saint Louis University
SCHOOL OF ACCOUNTANCY MANAGEMENT AND COMPUTING STUDIES
Baguio City

South Korea's Lotte Chilsung Beverage has offered to buy nearly 58% stake of Pepsi-
Cola Products Philippines. Lotte Chilsung currently holds an approximately 42% stake in Pepsi-
Cola Products Philippines. On the other hand, U.S. beverage giant PepsiCo Inc. (PEP) owns at
least 25% stake of Pepsi-Cola Products Philippines. Lotte Chilsung now wants to pay PHP1.95
per share to acquire up to about 2.13 billion shares which is equivalent to a 39% premium based
on the closing of Philippine Stock Exchange last Thursday with a closing price of PHP1.40.

(a) If you will be hired by Lotte Chilsung Beverage as its consultant in the said in the
said intended purchase, what advice will you give?

(b) What are the necessary legal steps that you need to undertake to make the acquisition
valid?

According to Rule 19.2.5. of Securities Regulations Code, “If any

acquisition that would result in ownership of over fifty percent (50%) of the total
outstanding equity securities of a public company, the acquirer shall be required
to make a tender offer under this Rule for all the outstanding equity securities to
all remaining stockholders of the said company at a price supported by a fairness
opinion provided by an independent financial advisor or equivalent third party.
The acquirer in such a tender offer shall be required to accept all securities
tendered.”

Since South Korea’s Lotte Chilsung Beverage intend to acquire fifty eight
percent of Pepsi- Cola Products Philippines, it all under the rule stated above.

(c) How about if you will be hired as consultant to represent the minority shareholders of
Pepsi-Cola Products Philippines, what advice will you give to those shareholders who
are opposed to the impending take over of Lotte Chilsung Beverage?

II
a. What is proxy solicitation?

Proxy Solicitation is a process that allows and authorizes corporate stockholders

to exercise their rights to vote even without being physically present at the meeting where
the proxy solicitation is intended but through another person or his duly authorized
representative.
b. Enumerate and discuss the limitations of proxy.

The validation of the proxy is only within for the meeting it is intended. Proxies
for a period longer than five years at one time are considered invalid. Also, no dealer or
broker shall consent or authorize any proxy in respect of any security carried for the
account of the customer, to a person other than the customer, without written
authorization of such customer. Lastly, a report identifying the beneficial owner shall be
submitted if the proxy covers at least ten percent or such percentage as the commission
may prescribe of the outstanding share of such issuer. The report shall be submitted ten
days after such acquisition.

III
a. What is insider trading?

Insider trading is illegal in the Philippines. Section 27 of the Securities Regulation

Code provides that: “It shall be unlawful for an insider to sell or buy a security of
the issuer, while in possession of material information with respect to the issuer or the
security that is not generally available to the public.”

b. Discuss the different instances when the same is considered as fraudulent.

It shall be illegal for any person, directly or indirectly, in connection with the
acquisition or sale of any securities to participate in any business act, transaction,
practice, or course that operates or will operate as a fraud or deception against any
person, take money or property by any untrue statement of a material fact of any
omission to state a material fact necessary to make the statements, in light of the
circumstances in which they were made, not misleading, or
use any device, technique, or artifice to deceive or to defraud.

c. Discuss the different instances when there is no duty to disclose.

According to the Supreme Court: “The intent of the law is the protection of
investors against fraud, committed when an insider, using secret information, takes
advantage of an uninformed investor.” The Supreme Court added that: “This duty to
disclose or abstain is based on two factors: first, the existence of a relationship giving
access, directly or indirectly, to information intended to be available only for a corporate
purpose and not for the personal benefit of anyone; and second, the inherent unfairness
involved when a party takes advantage of such information knowing it is unavailable to
those with whom he is dealing.” (SEC vs. Interport Resources Corporation, G.R. No.
135808, 6 October 2008)

It shall be unlawful for an issuer to buy or sell a security of the issuer, while in
ownership of material information regarding the issuer or security that is not generally
available to the public, unless the insider proves that the information was not obtained
from such a relationship, or if the other party selling or buying from the insider (or its
agent) is identified, the insider confirms that he or she disclosed the information to the
other party and that he had reason to believe that the other party otherwise also possesses
information, or it shall be illegal for any insider to communicate material non-public
information about the issuer or the security to any person who, by virtue of the
communication, becomes an insider.