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SCMP Reporter

WILLIAM Lines' buying of two rival firms' ships to create a dominant Philippine shipping company has met with a lukewarm response from investors.

  Since November 22, when the buy-out was broached, William Lines shares have not budged from 7.70 pesos (about HK$2.30), when the benchmark index surged more than eight per cent.

  Last week, William Lines said it would acquire the shipping business of Carlos A. Gothong Lines and Aboitiz Shipping Corp, in a 5.7 billion peso share swap next year.

  'Intuitively, it's very good,' Meluchi Adriano, an analyst with Baring Securities Philippines, said.

  'You cut out your main competitors.'   The acquisition of the two smaller ferry companies' ships and routes would create the Philippines' biggest cargo and passenger concern controlling more than half the industry's revenue.

  Disappointing earnings triggered cool response from investors, analysts said.

  The firm sold stock to the public in May at 9.65 pesos a share, with its underwriters projecting earnings to grow 10-fold this year to more than 500 million pesos.

  In the nine months to September 30, profit was 209 million pesos.

  'When we asked them about a value for the shipping assets, they couldn't provide any solid estimates,' Grace Cerdenia, an analyst with F. Yap Securities said.

  'It's very difficult to assess whether the figures they're providing are accurate.'   William Lines officials said by acquiring the vessels of Aboitiz and Gothong and making better use of the combined fleets the larger company would derive enormous savings.

  Audited results for 1994 showed William Lines, with 1.97 billion pesos in revenue, had 27 per cent market share, Aboitiz, 13 per cent and Gothong, 11 per cent.

  Bonifacio Doroy, William Lines executive vice-president, said only 34 out of the 43 ships that the three companies operated were needed to serve the 22 ports of call.

  The merged companies would enjoy, at the very least, the same revenue as the three separate companies, while saving bundles on operating costs. It would even be able to add routes and frequencies using the whittled down fleet, he said.

  Based on projected costs for this year, not having to run those nine extra ships would save at least 448.7 million pesos a year, according to official William Lines estimate.

  'This is where the big savings will be,' Mr Doroy told investors last week.

  The savings do not include lower labour costs and closures of duplicate berthing, storage, ticketing and docking facilities.

  The combined entity, to be known as WGA, will need 665 personnel, compared with 1,060 the three companies now employ.

  Overall, savings are in excess of 1.1 billion pesos.

  'These estimates are extremely conservative,' Victor Chiongbian, William Lines president, said.

    He said the combined company would eventually enjoy profits of at least one billion pesos a year.

  Others are worried that digesting the acquisition and then getting rid of the excess workers, always a difficulty in a country known to have a militant labour, may disrupt operations and put off any savings.

  Company officials acknowledged this and added that managements of all three were prepared to give good severance packages and assist dislocated workers in finding new jobs.

  'There are realities to this set up that have to be dealt with,' Endika Aboitiz, who is to become WGA's vice-chairman, said.

  The savings, analysts said, were not a sure thing, but the dilution of existing shareholders was.

  To pay for the buyout, William Lines will issue 711 million new shares in favour of Aboitiz and Gothong at eight pesos each, almost doubling the number of its outstanding shares.

  Then there are the three entities' history of rivalry, and whether their differing ethnic backgrounds might cause a clash of cultures.

  'Spanish and Chinese families on one board. That will be interesting,' Mr Adriano said.

  Mr Chiongbian believes their common interests will be enough to let past animosities fade away.

  'We know each other's strengths and weaknesses,' he said.



Cool response to William Lines' buy-out of firms