HORROR STORY TUESDAYS: WHAT HAVE WE DONE?

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In November 1998, Manny Pangilinan's First Pacific paid about US$749 million for a 17.5% controlling stake in PLDT.

This was not an amateur buyer.

MVP started as an investment banker. By 1998 he had spent 17 years building First Pacific in Hong Kong. He had the backing of Indonesia's Salim family and the resources to hire top advisers.

If anyone could do proper due diligence, it was this team.

And yet.

Once they were inside, they found that Piltel, PLDT's mobile subsidiary, owed about US$870 million.

Roughly US$280 million of that wasn't on the balance sheet.

MVP later told Forbes that after the purchase, he kept asking himself one question:

"What have we done?"

It didn't get easier. By 2002, Anthoni Salim wanted First Pacific out of the Philippines and signed a deal to sell the PLDT stake to the Gokongwei group. MVP fought it, the PLDT board backed him, and the deal collapsed.

Holding on turned out to be the right call.

But that's not the part I find most interesting.

What interests me is this: a buyer with that much experience, money and advice still got blindsided.

I see a smaller version of this all the time in Philippine real estate.

A property is owned by a corporation. The seller proposes selling the shares instead of the property, often because the taxes are lower.

Buyers who happily buy land, buildings and condo units suddenly hesitate.

Their answer is usually the same:

"I'll buy the asset. I don't want the corporation."

Why?

Because the due diligence is completely different.

When you buy a property, you check a defined list:

• Title

• Real property taxes

• Liens and encumbrances

• Zoning

• Existing leases

• Physical condition

When you buy the company, you inherit everything it ever did:

• Old tax assessments

• Unrecorded debts

• Guarantees for other people's loans

• Pending lawsuits

• Employee claims

• Questionable contracts and related-party deals

• Regulatory problems

• Obligations nobody remembers signing

The property may be excellent. The company that owns it may not be.

Due diligence reduces risk. It doesn't remove it.

And the liability that hurts most is usually the one you didn't know to look for.