Yuchengco’s bid for Philamlife: The cost of reputation
Oct. 8, 2008
by Lala Rimando
Of the growing list of family and business groups being rumored to be interested or have admitted their desire to buy a stake in the country’s most profitable insurance company, only the Yuchengcos have been met with disdain.
The Yuchengcos were the first to publicly admit that they are eyeing Philippine American Life and General Insurance Co. (Philamlife), which is now on the auction block. Philamlife’s parent company, financially distressed US insurer American International Group (AIG), is selling assets, including those in the Philippines, to raise cash to pay an expensive $61 billion emergency loan from the US government.
Since Philamlife, which has consolidated assets of P170 billion as of December 2007, is too big for just one Filipino group to afford and digest, analysts said the Yuchengcos’ declaration of interest is their strategy to call the attention of potential rich partners who can join them in the bid.
Philamlife, the market leader in the life insurance sector, will complement the Yuchengcos’ current market leadership in the non-life insurance sector. Clinching the Philamlife deal could seal the Yuchengcos’ position as the number one insurance company in the country.
But not long after the Yuchengcos came out in the open about their interest in Philamlife, a group of parents who used to be clients of Pacific Plans, Inc., a Yuchengco-owned pre-need firm, flooded various media outlets angrily questioning the family’s plan.
In the cyber world, individuals voiced their concerns in blogs and feedback channels of news sites, citing their sad experience of being shortchanged or “cheated” when the promised value of the investment product they bought from Pacific Plans was not honored.
Some of Philamlife’s own employees even threatened to resign should the Yuchengcos end up winning the race to own Philamlife.
Yet, when Jaime Augusto Zobel de Ayala admitted Tuesday that his family, too, is entertaining the opportunity to snatch the country’s market leader in life insurance business, or when the name of the Sy family was floated as another potential contender, no similar outrage was felt.
Why the stark difference? The answer lies in one of the Yuchengco’s past business decisions that continues to haunt them.
Thorn on the side
The thorn on the Yuchengco’s side is a small adversarial group called Parents Enabling Parents, or PEP.
They are a coalition of mostly middle-income individuals who were former clients of Pacific Plans. The group was formed in 2005 when Pacific Plans decided to seek legal remedy so it would not be compelled to pay the promised benefits of a financial product, referred to as a “pre-need” plan, a hybrid between an insurance and investment product that focused on funding education-related expenses.
As it turned out, the financial model behind the educational pre-need product was not viable since it promised to cover the entire future tuition cost of the plan’s beneficiary, even if the plan holder paid only a fraction of it.
For example, some parents paid only P40,000 in total premiums, but could reap up to P300,000 in equivalent benefits when the child finishes college or university as agreed in the plan’s contract.
Pacific Plan stopped offering this product way back in 1992, but by then, tuition costs had been going to the roof.
But to Pacific Plans’ 34,000 plan holders of this particular product, the problem was for the Yuchengcos to solve since part of the selling strategy then was to harp on the reputation of the Yuchengcos as a stable and trustworthy group.
Unfortunately for the Yuchengcos, the PEP members have the spare time and funds to engage the family and company executives in a legal war all the way to the Supreme Court.
What’s more, they are media savvy. They have taken advantage of every opportunity to capitalize on their position as the aggrieved party and portray the Yuchengcos as the big, bad capitalists.
They have since haunted the Yuchengcos in every possible way, including mounting protests to nix the naming of a street in Manila City after Alfonso Yuchengco, the family’s patriarch.
The timing of the Philamlife’s “for sale” announcement in October 3, doesn’t help either.
A few weeks before October 3, Pacific Plan’s clients got a notice that, based on the company’s rehabilitation plan, which PEP is still contesting in court, they will receive a reimbursement of the amount that they paid Pacific Plan only by 2010.
What fuels the plan holders’ resentment is that the notice also stipulates that the amount they will receive in 2010 is now pegged in dollars, which is the denomination of the bond where Pacific Plan parked its clients’ money.
“Who knows what will happen with the dollar by 2010?” a PEP member told abs-cbnnews.com/Newsbreak. “Besides, why should we be the one to shoulder the currency risk when we have nothing to do with the decision to invest in a dollar-denominated bond?”
In other words, it has reached a point where the rift between PEP and the Yuchengcos could hardly be mended by reason.
On the Philamlife sale, PEP is harping on trust, or the lack of it.
“How can you trust this group who has reneged on its commitments to us?” the PEP member noted. “What assurance do the Philamlife clients have that what happened to us will not happen to them, too?”
That’s a potent line that could have potentially influenced or planted doubts on the minds even of those who are not affected by Pacific Plan’s fate, a crisis management expert familiar with the Pacific Plan case explained to abs-cbnnews.com/Newsbreak.
Even if the parents group is “just a very small portion of the society,” that public message could likely dent public perception on the Yuchengcos.
“They [PEP] are not representative of the entire public because if you remove this active, adversarial group, everything will be quiet,” the expert noted.
Yet, the efforts of PEP to reincarnate an old issue is “a PR [public relations] nightmare now,” the expert said.
The nightmare is that PEP’s efforts could now upset the Yuchengcos’ opportunity to clinch a deal that could potentially catapult them as the undisputed leader in the insurance industry.
The Yuchengcos wealth, which currently encompasses banking, real estate, asset management, and others, were spawned from profits out of their early forays in the insurance industry.
The crisis expert explained that aside from considering how much sale proceeds AIG could extract out of Philamlife, it would likely be choosy as to whom it would sell its crown jewel in the Philippines.
“You would like to protect what you have built up and would think twice if a buyer has a ‘baggage’,” the expert said.
Philamlife has been a profitable subsidiary of AIG for over six decades.
Philamlife’s chief executive, Jose Cuisia Jr., was himself one of the luminaries in the Philippine insurance industry.
In fact, PEP did not fail to include Cuisia in their Yuchengco tirades. In their media interviews, they reminded Cuisia that at the height of the Pacific Plan fiasco in 2005, he took the position that the Yuchengcos should honor their obligation to the parents since it was the Yuchengcos’ fiduciary responsibility to do so.
When asked about this, however, Cuisia stressed that he has nothing to do with picking Philamlife’s buyer or buyers since AIG has appointed two foreign banks to handle and oversee the sale all throughout.
He said AIG will likely consider three criteria when short listing the interested buyers: strong financials, strategic fit, and a top-rated brand name.
Generally, the reputation of the company and those running plays a major role in building a brand name.
An industry executive also added that besides reputation, “the prospective buyer should also fit with Philamlife’s culture.” He referred to news going around the industry players that even the Philamlife employees have expressed to Cuisia their concern about being associated with the Yuchengcos.
We requested an interview with a representative of the Yuchengco group, but they have not replied as of posting.
The crisis management expert said that the lesson for companies is that they should take care of their reputation and engage with, and if possible, find a middle ground with, their stakeholders.
Reputation, after all, is built overtime, but could be tainted in a snap.
At this stage, the expert said the best that the Yuchengcos could do is to reach out to those who still listen to reason and remind the public of how good and trustworthy they really are.
“Perhaps a month-long or two months worth of “reminding” through media or some other avenues could do the trick,” the expert said.
as of 10/08/2008 6:54 PM