PwC Philippines

M&A Challenge
Preliminary Round
November 06, 2020

This report is published for educational purposes

only by students competing in PwC Philippines
M&A Challenge.
Executive Summary
The Philippine economy is one of the fastest growing economies in Asia. However, the economy has taken a
severe hit with a GDP growth of -0.7% in 1Q and -16.5% in 2Q due to prolonged domestic lockdown caused
by the global pandemic. Inflation rate eases to 2.3% in September due to some regions in the country
relaunching COVID-19 restriction measures. On the other hand, the country has a robust external debt
position at $81.4 billion as of 1Q20. Its national debt to GDP ratio sits at 43.4% and 48.1% for the first two
quarters of the year. Overall, the Covid-19 pandemic imposes risk and disruptions that could potentially lead
to further deterioration of economic activities and growth, and slowdowns on emerging markets. But, on a
positive note, the economy is expected to rebound in 2021 as the pandemic will be contained. Economies
will further be opened upon the availability of vaccines, and as more government stimulus measures will be
implemented.

The key drivers of the Philippine economy are population, private consumption, consumer confidence, and
the advancement of the information and communication technology industry. Also, it is expected that
Philippine software product and service sales will reach $78.4 million by 2024. Enterprise application
spending was the strongest area of spending in 2018- 2019, making up 2/3 of total software spending. There
are about 400 software firms operating in the Philippines with U.S. and European firms dominating in the
enterprise application segment. Domestic consumers include large private sector entities continually seeking
digitization solutions in HR, accounting, business intelligence and data warehousing. The need for
digitization is high in the Philippines, which favors paper heavy bureaucratic processes, and lags global
standards regarding internet speed and ICT utilization in the country. The Philippines' growing demand in IT
and the upward technology of technological innovative solutions is an opportunity for market players.

After its PSE listing in 1999, Alliance Global Inc. (AGI) obtained approval from SEC to broaden its primary
business and become a holding company. It then began acquiring a diverse group of businesses, primarily in
the real estate and food and beverage industries. On the other hand, Pacific Online Systems Corporation
(LOTO) is engaged in the development and management of online computer systems, terminals, and
software for the lottery industry. LOTO provides technical and market expertise for the distribution of lottery
products in the country in partnership with the state-run Philippine Charity Sweepstakes Office (PCSO).
Since 1995, LOTO has been leasing to PCSO its online lottery systems for the Visayas and Mindanao
regions. It likewise provides the technical support to the PCSO through a maintenance repair agreement,
which is co-terminus with its equipment lease agreement.

The possible merger of AGI and LOTO will boost their overall gaming revenues and provide opportunities for
growth. With combined efforts, they will be able to tackle higher-income and lower-income earners market in
the gambling industry. AGI will be able to sell LOTO’s products through its own distribution channels without
cannibalizing existing acquirer or target sales. Although they are both in the gaming industry, AGI’s leisure
subsidiary primarily deals with casinos and cater to higher-income customers while LOTO primarily provides
gaming technologies and sweepstakes to the middle-income and low-income earners’ market. Further,
technologies of the target can boost the digitalization strategy to accelerate AGI’s operations during these
trying times. Furthermore, LOTO provides technical and market expertise in terms of digital technologies in
the gaming industry. Additionally, AGI needs to equip a strong digitalization strategy to keep up with the new
normal especially in the their casino business. AGI and LOTO have both traditional and digital gaming
services and both would benefit from consolidation.

Upon evaluation of the operational and financial challenges and opportunities brought by the proposed
acquisition of LOTO by AGI, the Team sees no substantial lessening of competition in the gambling industry.
Our analysis shows the following findings as regards the market for casino service, to wit: (i) sufficient
competitive constraints remain from other casinos; (ii) consumers have strong buyer power and are able to
switch easily among different casinos; and (iii) the transaction will not increase the likelihood of , or
strengthen existing, coordination among market players. With respect to market for gambling and online
gaming technologies, our findings are as follows: (i) the merging parties do not have a substantial increase in
the overall gambling market share as casinos primarily dominate the gambling industry; and (ii) sufficient
competitive constraints remain from other market participants.

This report is published for educational purposes only by students competing in PwC Philippines M&A Challenge.
 Figure 1: Real GDP Growth of
I. Macroeconomic and Industry Assessment
Developing and Advanced Economies
The Philippine economy is one of the fastest growing economies in Asia. However, the
economy has taken a severe hit with a GDP growth of -0.7% and -16.5% in 1Q and 2Q
of 2020 respectively, due to prolonged domestic lockdown caused by the global
pandemic. Unemployment rate rose to 17.7% which clearly shows how the pandemic
affected the Philippine labor market. On the monetary side, inflation rate eases to 2.3%
in September which was the lowest reading since May due to some regions in the
country relaunching COVID-19 restriction measures. In the fiscal side, Philippines has a
robust external debt position at $81.4 billion as of 1Q20. The country’s national debt to
Source: IMF, World Economic Outlook 2020
GDP ratio sits at 43.4% and 48.1% for the 1Q and 2Q of 2020 respectively. This means
the government has wider fiscal space, allowing it borrow more in order to stimulate the
economy without jeopardizing the financial position of the country.
Figure 2: Philippines
GDP Growth Forecast Update Overall, the Philippine economy has strong macroeconomic fundamentals. However, the
8%
6%
pandemic continues to pose risk and disruptions that could potentially lead to further
4% deterioration to economic activities and growth, and slowdowns emerging markets such
2% as the Philippines. On a positive note, the Philippine economy is expected to rebound in
0%
2021 as the pandemic is expected to be contained and the availability of the vaccine
-2 %
-4 % against COVID-19. The economies will further be opened, and more government
-6 % stimulus measures will be implemented to drive up economic activities. Solid
-8 % macroeconomic fundamentals safeguarded the country from further slowdown in global
2020 2020 U 2021 2021 U
Source: Asian Development Bank, economic growth due to the pandemic.
Asian Development Outlook 2020
DRIVERS
Figure 3: Philippines Employment
Population
Situation
Philippines October April July
The estimated population of the country by the end of 2020 is pegged at 109.9 million.
2019r 2020p 2020p COVID-19 restrictions have disrupted access to family planning services which led to
Labor Force 61.5 55.6 61.9
Participation Rate unplanned pregnancies. Further, a projected compound annual growth rate (CAGR) of
(%)
Employment Rate 95.5 82.3 90.0
1.6% in the population is seen through the past years. The working-age populace is also
(%) growing, with 70.3 million which is 64% of the population, compared to 62% in 2010.
Unemployment 4.5 17.7 10.0
Rate (%)
Source: Philippine Statistics Authority Labor Force Almost two out of every five Filipinos will be residing in Central Luzon, Metro Manila, and
Survey Calabarzon by the start of the new decade, with almost half of the population growth
occurring in the same 3 areas where head offices of businesses are located. Meanwhile,
Figure 4: Philippine Inflation Rate Visayas and Mindanao have growth figures lower than the national average of 1.52%.
Average Consumer Prices With the increasing trend in population productive capacity of the economy, businesses
can either increase their margins or decrease their price to increase overall sales.

Private Consumption
The key engine that drives economic growth in the Philippines is private consumption
which accounts for 74.6% of total GDP as of 2Q20. The primary factors fueling it, are:
(a) the country’s population size estimated at 109.6 million in 2020 and is growing at
1.6% p.a.; (b) Filipinos high propensity to consume; and (c) finally, remittances from
overseas Filipino workers which is USD 30.1 billion in 2019, which BSP expects to
contract by 5.0% by the end of 2020, and is at USD 16.8 billion as of July 2020.

Consumer Confidence
Although Philippines is the 3rd in Asia Pacific with the highest consumer confidence
Source: IMF, World Economic Outlook 2020
index in 2Q20, consumer confidence among Filipinos took a nosedive in the third quarter
which was decelerated by lower incomes and high unemployment amid the COVID-19
pandemic. According to BSP, the consumer confidence index netted -54.5 percent,
Figure 5: Philippine Fiscal and showing that more Filipinos saw their family incomes and financial situations worsen as
Monetary System the country remains in crisis.
Current Credit Ratings
Information and Communication Technology (ICT)
S&P BBB+. Stable The economic drivers and population growth, and global impact of COVID-19 paved the
Moody’s Baa2 Stable way to invest more in modernizing digital infrastructure in the Philippines. The country is
becoming one of the emerging tech regions in Asia in line with PhP 5.2 billion budget
Fitch BBB Stable
allocated for the Department of Information and Communications Technology (DICT) to
Source: Bangko Sentral ng Pilipinas, support its efforts in rolling out interconnectivity and data security programs. The
Financial Indicators Released October 2019
entrance of a new TELCO market player will provide Filipinos more access to IT
services and software applications improving their daily lives, as well improves the ease
of doing businesses because of innovative technological tools and solutions.

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1
 Figure 6: General Government Gross
Debt (Percent of GDP)
80
SOFTWARE AND SERVICES INDUSTRY
Broadcast Music Incorporated (BMI) forecasts that Philippine software and software
70 service sales will reach $78.4 million by 2024. Enterprise application spending was the
strongest area of spending in 2018- 2019, making up 2/3 of total software spending as a
60
result of the termination of the extended support for Microsoft 7, which further led to
50 software purchases. The remaining 1/3 included database storage and management
solutions. More or less 400 software firms operate in the Philippines with U.S. and
40
European firms dominating in the enterprise application segment. Domestic consumers
30
include large private sector entities have been continually seeking digitization solutions
in human resources (HR), accounting, business intelligence and data warehousing. The
20 need for digitization is high in the Philippines, which favors paper heavy bureaucratic
10
processes, and lags global standards regarding internet speed and ICT utilization in the
country. The Philippines' growing demand in IT and the upward technology of
0 technological innovative solutions is an opportunity for market players. Most especially
00

now, where companies are going digital due to limited face to face interaction brought by
02
04
20

06
20

08
20

10
20

12
20

14
20

16
20

the pandemic.
18
20

20
20

22
20

24
20

20

20

Source: IMF
REGULATIONS
Philippines has several laws covering ICT, cybersecurity, and gambling industry which is
Figure 7: Philippine Population observed by firms that operates in the technological and gambling industry. In
(In Millions) accordance to Republic Act No. 10844, the Department of Information and
12 0
Communications Technology spearheaded the national ICT development agenda of the
country including deployment acceleration of fiber optic cables and wireless
10 0
technologies to improve internet speed in the country. For the gambling industry,
80
Presidential Decree No. 1869, the charter of the Philippine Amusement and Gaming
Corporation (PAGCOR) provides guidelines, rules, and regulations to authorize, license,
60 and regulate all games of chance within the Philippines while laying out the legal
framework for corporations to obtaining licenses.
40
COVID-19 EFFECTS
20 As of the first quarter of the fiscal year 2020, a minimal change has been made to mix
the gross domestic product (GDP) by the service sector which composes 61.6%. This is
0 because of the information technology (IT) and business process outsourcing (BPO)
20 00
20 02

which increased to USD 25.3 billion in 2019 and has a compound annual growth rate
20 04
20 06
20 08
20 10
20 12
20 14
20 16
20 18
20 20
20 22

(CAGR) of 12.2% since 2009. This implies an increasing disposable income per capita
20 24

Source: IMF which results in a higher buying power. However, during the coronavirus pandemic, a
significant number of BPO workers were placed under a “no work, no pay” policy which
disrupted the operations of the industry. To save the operations of the industry, it was
Figure 8: Philippine Consumer
revealed by the Department of Labor and Employment (DOLE) that Metro Manila, Clark,
Confidence and Cebu will be possible locations for operations. With this, it is expected there will be
20 a demand for BPO workers resulting in a recovery in the industry. In a report issued by
Asian Development Bank in September 2020, the Philippine economy is expected to
0
contract by 7.3% in 2020 and is expected to grow by 6.1% in 2021. In the second half of
-20 2020, the fiscal response of the government gains grip and there is an increase of
-40 household consumption. Looking at the employment situation, the services sector has
provided 3.4 million jobs between April of this year until July of this year. Consequently,
-60 the unemployment rate became 10% in July of this year from the 17.7% in April of this
201 201 201 2Q2
7 8 9 0 year.
Series1 9.5 -22.5 1.31 -54.5
Alliance Global Group, Inc. (AGI) which some of its subsidiaries belong to the real
Source: Bangko Sentral ng Pilipinas
estate, hotel and restaurant sector are all classified as high-risk impact while the
construction sector is classified as a medium risk impact to the coronavirus pandemic.
Figure 9: 2Q20 Consumer The Philippine Institute for Development Studies mentions that the losses of the real
Confidence Index estate, hotel and restaurant services range from PhP 10.7 billion to PhP 79.7 billion
150 while losses of the construction sector range from PhP 1.7 to PhP 19.3 billion.
100
The major challenges which became apparent due to the pandemic have seen a
50
decrease in the following: mall rentals, real estate sales, and hotel revenues. Another
0
reason is due to the temporary halt in casino gaming operations.
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Source: Nielsen

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2
 Figure 10: Philippine Business COVID-19 RECOVERY
Confidence
To recover in the ongoing pandemic, it is vital to bring back consumer confidence
through virtual shopping. With increased consumer confidence, revenues will be
generated making the economy move because people are supporting and buying local.

The target company belongs to the gambling industry and, it is expected that there will
be 11% decline in revenue for the global gambling industry in 2020. However, an
opportunity for the gambling industry is to migrate from offline to online gambling
industry. With this, it is expected there will be an increase of around 13.2% for the year
2020. The growth in revenue shown in the poker and online casino sectors can be
Source: Bangko Sentral ng Pilipinas
attributed to the coronavirus pandemic.
Figure 11: Quarantine Status (as of
On the other hand, a challenge brought by the pandemic is the resumption of offshore
November 2020) site operations such as POGOs. Offshore sites are limited to 30% capacity. Before the
Status Location
pandemic, PAGCOR reported Php600 million monthly regulatory fees. Currently, 29 out
General Community Luzon: All highly of the 55 POGO licenses met the coronavirus pandemic regulations.
Quarantine (GCQ) urbanized centers
(HUCs) of the
National Capital The limited operating capacity of POGOs and with few businesses resuming their
Region (NCR),
Municipality of operations, would result to reduction of property values, lower personal income taxes,
Pateros, Batangas
and a strain on businesses in the country.
Visayas: Iloilo City,
Tacloban City, ;
Bacolod City

II. Overview of the Company

Mindanao: Iligan City
and Lanao del Sur

MGCQ Rest of the Philippines

Source: Malacañang BUSINESS DESCRIPTION

AGI or the Group was incorporated in the Philippines on October 12, 1993, and began
Figure 11: Company Milestones
operations in 1994 as a glass container manufacturer after it acquired a glass
YEAR ACHIEVEMENT
1993 Incorporation of Alliance manufacturing plant in Canlubang, Laguna. After its listing on the Philippine Stock
Global Group, Inc. Exchange (PSE) in 1999, the company obtained approval from the Philippine SEC to
1994 Initial operation of AGI as a broaden its primary business and become a holding company. That same year, the
glass-container
manufacturer. company began acquiring a diverse group of businesses, primarily in the real estate and
1996 Megaworld began to focus on food and beverage industries. Refer to Appendices 1-4 for the company’s key financials.
the development of mixed-
use communities.
1999 AGI PM public listing in the SUBSIDIARIES
PSE.
2003 Incorporation of Travellers Megaworld Corporation (Real Estate)
International Hotel Group,
Inc. and Incorporation of Megaworld was the first to introduce the “live-work-play-learn” concept or commonly
Emperador Inc.
2005 Diversification of AGI into the
known as townships in the country. Townships integrate lifestyle convenience of having
Quick Service Restaurant. high quality residence near to office, commercial, educational, and leisure and
2007 AGI follow-on offering. entertainment facilities. Global-Estate Resorts, Inc. (GERI), a subsidiary of Megaworld
2008 Travellers partnership deal
with Genting HK Ltd.
Corporation, has diversified real estate inventory including residential and commercial
2009 Launch of Resorts World lots, residential condominium units, condominium hotel units, and golf club shares
Manila. focused on tourism estates. Empire East Land Holdings, Inc. (ELI) is composed of
2011 EMP PM public listing in the
PSE.
multi-customer mid- to high-rise condominium projects and multi-phase subdivision
2013 RWM PM public listing in the developments in Metro Manila and the South. The holdings corporation was able to set
PSE. the trend for the transit-oriented development (TOD) and also includes ready-for-
2014 Emperador acquisition of
Whyte and Mackay.
occupancy units. Suntrust Philippines, Inc. (SPI), another subsidiary of Megaworld
2016 Emperador acquisition of Corporation provides affordable homes in well-planned and secured community
Bodegas Fundador. developments. The project features commercial centers, clubhouses and other
2017 Incorporation of Infracorp and
Emperador acquisition of
amenities, schools and 24-hour security.
Pedro Domecq brands.
2018 AGI's 25th year of Emperador Inc. (Beverage)
incorporation as a holding The company is known as the biggest liquor company and the world's largest brandy
company.
manufacturer. The products are divided into the following segments: mainstream,
Source: Alliance Global Inc.
millennials, standard, premium, super premium, and luxury. Mainstream market
Figure 12: Share Information products which range from PhP 64 to PhP 100. Millennial market products which range
from PhP 27 to PhP 120. Standard market products which range from PhP 142 to 300.
Total Outstanding Shares:
9,823,327,979 common shares Premium market products which range from PhP 300 to PhP 1,250. Super premium
market products which range from PhP 1,250 to PhP 1,900. Lastly is the luxury market
Exchange Where Listed: product which ranges from PhP 3,500 to PhP 13,000.
Philippine Stock Exchange

Source: Alliance Global Inc.

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3
 Figure 13
BOARD OF DIRECTORS
Andrew L. Tan Chairman of
the Board. Travellers International Hotel Group, Inc. (Hospitality)
Kevin Andrew L. Tan Vice-Chairman Travellers International is the developer of Resorts World Manila, the first integrated
and Chief tourism resort in the Philippines that combines hospitality, entertainment, leisure,
Executive
Officer (CEO) shopping and gaming in one ground. It also operates gaming facilities, gaming areas,
Kingson U. Sian President and mall, cinema, performing arts theater, amusement and leisure center, training academy
Director. and call center, hotels, and Runway Manila, a 220-meter pedestrian link bridge that
Katherine L. Tan Director and directly connects NAIA Airport 3 with Newport City.
Treasurer
Winston S. Co Director Golden Arches Development Corporation (Food)
Alejo L. Villanueva, Jr. Independent Golden Arches Development Corporation (GADC) currently holds the franchise of
Director
Sergio R. Ortiz-Luis, Jr. Independent McDonald’s in the Philippines. The McDonald’s system in the United States is adopted
Director in the Philippines. The system is used in the restaurant operations and is expected to be
compiled which is intended to maintain and value the goodwill of the brand. The menu of
Source: Alliance Global Inc.
McDonald’s includes “global icons” of beef burgers and fries, “local favorites” which
Figure 14: Top 20 Stockholders cater to the Philippine taste, and espresso-based coffee products. McDonald’s aims to
1. The Andresons Group, Inc. appeal to people of all ages
2. PCD Nominee Corporation (Non-Filipino)
3. PCD Nominee Corporation (Filipino) Infracorp Development Inc.
4. Altavision Resources, Inc.
5. Yorkshire Holdings, Inc. Infracorp is the infrastructure arm of AGI providing solutions to transportation problems.
6. Asiagroup Holdings, Inc. It aims to improve the connectivity of all the conglomerate’s properties and enhance the
7. Globaland Holdings, Inc.
8. Grand Belair Holdings, Inc. value of the real estate and tourism developments.
9. Le Bristol Holdings, Inc.
10. California Orchard Growers’ Investments Inc.
11. Eastwood Property Holdings, Inc.
12. Andrew L. Tan
13. Andresons Global Inc. COMPANY STRATEGIES
14. The Andresons Group, Inc.
15. Megaworld Cebu Properties, Inc.
To quickly recover from the impact of this global pandemic, the Group implemented the
16. Kingson Uy Siok Sian following strategies:
17. Lucio W. Yan &/or Clara Y. Yan
18. First Centro, Inc. Sustainability and Well-being Strategy
19. Jianhua Su In line with UN sustainable deveIopment goals, the townships of Megaworld, a
20. American Wire & Cable Co., Inc.
subsidiary of AGI, is a best example of sustainable real estate. It has been given a
Source: Alliance Global Inc.
Grade A and has been recognized as LEED-certified office buildings. In addition, the
Figure 15 Group prioritizes the welfare of its employees by offering mental health and wellness
programs alongside with the strengthened health insurance coverages. Further, the
acquisition plan of LOTO will be a catalyst of the Group’s digital transformation, taking
advantage of the former’s technological innovation. This in turn will reduce health risk of
the employees due to less face to face interaction.
Earnings Diversity Strategy
LOTO acquisition will further expand and diversify the Group’s revenue mix to give
future growth without sacrificing earnings stability. Megaworld, the largest contributor to
the group’s revenues will continue to build a significant recurring income stream. Also,
the company has also been growing the contribution of its projects in key provincial
cities throughout the country to reduce its concentration of revenues in Metro Manila.
With regard to overseas expansion, Emperador maintains its momentum in key
international markets.
Digitalization Strategy
Under this strategy, the group expanded their applications of operations in various
areas: online real estate selling; cashless and contactless transactions for its malls,
hotel operations, and quick service restaurants; as well as property management,
among others. Further, the Group invested in e-commerce applications including
Figure 16 interactive customer service management. This aims to navigate the business
environment and provide the customers with the enhanced services under the new
normal. This year, AGILE Digital Ventures was created by Megaworld, which will
spearhead the company into digital innovations and technology. Pickaroo, an all-in-one,
on-demand premium lifestyle delivery app launched in Metro Manila on August 18,
2020.
Financial Flexibility Strategy
The Group is focused on maintaining financial discipline even as it continues to pursue
aggressive expansion plans. This year, the Group reduced its capital expenditures to
Php42B by focusing on projects committed for completion this year. Php36B will be
allotted for Megaworld, Php4B will be allotted for Travellers, and another Php2B will be
allotted for Emperador and Golden Arches Development Corporation

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 Adaptability Strategy
The group is financially sound by having a healthy balance sheet. The financial health of
the group is prepared to take advantage of the opportunities in land banking or in
Figure 17 business acquisitions. This strategy has been proven effective during uncertain times
which was shown during the launch of Eastwood City during the Asian financial crisis in
1997 and the launch of Resorts World Manila during the global financial crisis in 2009.

IIII. Merger and Acquisition Analysis

RELEVANT PRODUCT MARKET
The Group provides gaming terminals and software services similar to that of Pacific
Online Systems Corporation (LOTO). These gaming terminals are lottery equipment
units which have their own software. Specifically, these lottery equipment consists of
regular slot machines and progressive slot machines. Other related services of the
Group are jackpot games, instant scratch tickets, and keno games.

RELEVANT GEOGRAPHIC MARKET

LOTO provides technical and market expertise for the distribution of lottery products in
the country. It operates in a number of individual casinos, and at the same time serves
as a regulator to privately owned casino operators. As of December 31, 2019, LOTO
has over 5,600 lottery terminals installed nationwide.

PAGCOR was created to centralize and integrate gambling operations in the country to
minimize the evils, malpractices, and corruptions in the conduct and operation of
Figure 18 gambling clubs and casinos, if left without direct government regulation and
involvement. With this, PAGCOR a government owned and controlled entity, regulates
competition in the gambling industry through its regulatory powers. It oversees the
games of chance particularly in casino gambling, and grants licenses to operate
integrated resorts to private sector companies. At present, PAGCOR operates 9 casino
branches and 32 satellite casinos in major cities nationwide. Specifically, there are 2
casino branches and 15 satellite casinos. In Luzon, there are 3 casino branches and 11
satellite casinos while in Visayas and Mindanao, there are 2 casino branches and 6
satellite casinos.
GAMBLING INDUSTRY PORTER’S FIVE FORCES
Threat of New Entrant - LOW
The threat of new entrants in the resort and casino industry, and gambling industry is
low due to the large amount of capital needed to operate. The industry also leverages
the efficiencies and the synergies from the economies of scale and hence, the entry
barriers are high. A firm has to go through a process to become licensed and then they
have to be constantly regulated by multiple organizations.
Bargaining Power of Customers - HIGH
Consumers can be selective about where they spend their money which means some
gamers or gamblers tend to have a pack mentality when it comes to the games they
purchase and play. Buyers hold a lot of sway over the industry, and one bad or
disappointing offering or loss that causes a revolt from casinos or gaming community
Figure 19: SUBSIDIARIES can devastate a company. As previously mentioned, switching costs in the industry are
very low. which gives buyers a strong power over the industry
Threat of Substitutes - MODERATE
Threat of substitutes is at moderate. A lot of gambling options is available in the
Philippines. there’s masaio cockfighting, swertres among others available on the streets
which is more accessible compared to going to casinos or accessing the game online.
Furthermore, the emergence of different mobile gaming apps could be a possible
substitute
Bargaining Power of Supplier - HIGH
Suppliers of the relevant industry possess a degree of bargaining power since they
provide physical products and materials, such as computer hardware and software,
graphics cards, and network infrastructure, and intellectual property. However,
companies can opt for diversifying their supplier mix.
Rivalry Among Existing Competitors – VERY HIGH
Source: Alliance Global Inc.
Rivalry is very intense because of numerous factors such as a staggered industry, which
seems to have arrived to its mature stage. Pricing strategies and wars are very common
in the industry. Different casinos and gaming establishments have emerged in the
country, and also the entry of POGO has raised the competitive environment in the
industry.
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5
 Figure 20: Company
Milestones
IV. Evaluation of the Target
YEAR ACHIEVEMENT
1993 Incorporation of BUSINESS DESCRIPTION
Pacific Online Pacific Online Systems Corporation (LOTO) is engaged in the development and
Systems Corporation
1996 First Lotto game management of online computer systems, terminals, and software for the Philippine
(6/42) was launched lottery industry. LOTO provides technical and market expertise for the distribution of
in VisMin lottery products in the country in partnership with the state-run Philippine Charity
2004 Acquired Total
Gaming Sweepstakes Office (PCSO). Since 1995, LOTO has been leasing to PCSO its online
Technologies, Inc. lottery systems for the Visayas and Mindanao regions. It likewise provides technical
(50%) support to the PCSO through a maintenance repair agreement, which is co-terminus
2007 Acquired Lucky Circle
Corporation/Publicly with its equipment lease agreement. Refer to Appendices 5-6 for the company’s key
listed in PSE as financials.
"LOTO"
2009 Awarded for
distribution of
SUBSIDIARIES
Scratchit nationwide
2010 Awarded "Best Under
Total Gaming Technologies, Inc
a $Billion" by Forbes A wholly owned subsidiary of LOTO that provides the terminals and gaming systems for
Asia the Keno (Lotto Express) game nationwide. It operates in the Administrative and Support
2011 Awarded by Forbes
Asia Services sector.
2015 Obtained certification
for ISO 9001:2008 Innovative Solutions Consultancy Group Corp.
QMS & ISO/IEC
2700:2013 ISMS
A management consulting and technology services firm that provides web solutions,
program management, enterprise solutions, and business services for government
Source: Pacific Online Systems Corporation
agencies.

Loto Pacific Leisure Corporation

Figure 21 Located in Pasig, the company operates in the amusement, gambling, and recreation
BOARD OF DIRECTORS Industries sector.
▪ Willy N. Ocier
▪ Armin Antonio B. Raquel Santos
▪ Tarcisio M. Medalla Lucky Circle Corp.
▪ Henry N. Ocier
The company engages in or carry on the business of distributing, marketing, selling in
▪ Regina O. Reyes
▪ Ma. Virginia V. Abo-Hamda wholesale or retail, Lotto and sweepstakes tickets, insofar and to the extent permitted by
▪ Laurito E. Serrano law.
▪ Jerry C. Tiu
▪ Joseph C. Tan
▪ Atty. Bayani K. Tan
RELEVANT INFORMATION
▪ Atty. Jason C. Nalupta ▪ For the year ended December 2019, there was a decrease of 49% over total
revenues during the same period in 2018. The decrease was due to lower lotto sales,
Source: Pacific Online Systems Corporation
which was cannibalized by the continuing expansion of Small-Town Lottery (STL).
▪ In addition, President Duterte ordered the suspension of all PCSO games for a time
and it took 3 months before retail sales levels returned to pre-suspension period for
Figure 21: Corporate instant scratch tickets.
Structure ▪ Total operating expenses, including depreciation and amortization for 2019
decreased by 15% due to freeze hiring and non-replacement of personnel, adopting
PACIFIC ONLINE
SYSTEMS CORP.
the PAS16, termination of a couple of management contracts, negative EBITDA, and
(POSC)
overall decrease in Keno sales
LOTTO &
DISTRIBUTION ▪ Expenses increased due to increased volume of filed visits, higher amounts of spare
parts used to repair aging terminals, updated marketing collaterals and training
support, payment of stock dividends issued in 2019, increase in other business
Total Gaming
Loto Pacific Leisure Technologies Inc. (TGTI) incidental expenses, and impairment loss of LCC goodwill and mark to market loss
Corp. (Loto Pac)

100% Owned
KENO LOTTO
EXPRESS
on marketable securities.
98.92% Owned ▪ The group’s net loss after tax of 317.6 million pesos represents a 204% decline from
last year’s net income of 304 million pesos.
▪ The lower net income was a result of a 42% drop in overall sales across all products.
Lucky Circle Corp. (LCC) Falcon Resources Inc.
(FRI)
RETAIL NETWORK
97.64% Owned by POSC DUSTRIBUTION
2.36% Owned by Loto Pac 100% Owned
COMPETITIVE ADVANTANGES
Source: Pacific Online Systems Corporation COST SYNERGY
Consolidation of Overlapping Facilities
Pacific Online Systems Corporation provides technical and market expertise in terms of
digital technologies in the gaming industry. Additionally, the Alliance Global Inc. needs
to equip a strong digitalization strategy to keep up with the new normal especially in the
their casino business. Both AGI and LOTO have both traditional and digital gaming
services and would benefit from consolidation. Refer to Appendix 11 for reference.

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6
 Ability to Purchase Key Inputs at Lower Prices
Figure 21: Number of
As LOTO also provides gaming technology and equipment to PCSO retailers
Terminals nationwide, they may support or replace the current gaming system that is used by
Year Lotto Keno AGI’s subsidiary, RWM. Software and systems for gaming can be utilized by both
company. Additionally, digital technologies by LOTO can be utilized in different
2014 4,036 1,262
operations by AGI such as for online applications, and contactless online transactions.
2015 4,088 1,770
Economies of Scale
2016 4,157 2,020 AGI and LOTO will benefit from an expanded market reach as LOTO will be able to sell
their sweepstakes in AGI real estate, among other locations, and AGI will be able to
2017 4,205 2,410
benefit form an expanded product line, be able to penetrate the another income bracket,
2018 4,029 2,454 and sell to numerous clients across the Philippines.Once AGI acquires LOTO,
operations will expand and gaming technology costs may lessen due to the economies
Source: Pacific Online Systems Corporation of scale.

REVENUE SYNERGY
Figure 22: Share Information
The possible merger of AGI and LOTO will boost their overall gaming revenues and give
opportunities for growth. With combined efforts, they will be able to tackle higher-income
Total Outstanding Shares: and lower-income earners. AGI will be able to sell LOTO’s products through its own
895,330,946 common shares
distribution channels without cannibalizing existing acquirer or target sales. Although
Exchange Where Listed: they are both in the gaming industry, AGI’s leisure subsidiary primarily deals with
Philippine Stock Exchange casinos and cater to higher-income customers while LOTO primarily provides gaming
technologies and sweepstakes to middle-income and low-income earners. Further,
Source: PSE technologies of the target can boost the digitalization strategy to accelerate AGI’s
operations during these trying times.
Figure 23: Management

V. Assessment of the Competitive Environment

Officers
President Willy N. Ocier

Chief Financial
Officer and Contact Ma. Virginia V. Abo-
for Investor Hamda Gambling Industry
Relations
The gambling industry mainly comprises electronic gaming sites, casinos, and offshore
VP - Technical Valentino L. gaming, the bulk of which is in casino revenues. 72% of the casino revenues are from
Services Kintanar
four privately-held casinos located in Entertainment City and Newport City. As shown in
VP - Agent
Romeo J. Roque Jr. the chart below, the casino market is moderately concentrated and may risk antitrust
Management
action should the change in HHI be 100 or more. However, the change in HHI is minimal
VP - Central System
Christopher C. (8.74). This may be due to the declining sales and market share of LOTO in the past few
& Network
Management
Villaflor years due to problems such as the two month lockdown in 2019 and the increased
aggressiveness of their competitor, Small Town Lottery, in the Visayas and Mindanao
VP - Human
Resources
Ma. Concepcion T. regions. Due to the change in HHI being less than a hundred, there is no action that will
Sangil
Management be undertaken by the PCC. Furthermore, as AGI and LOTO are not direct rivals nor the
AVP - Internal Anna Josefina G.
main supplier or client to one another, this supports that this does not violate PCC
Auditor Esteban guidelines.
Corporate Planning
Head and Integrated
Mischel Gabrielle O. RESULTS
Management
Mendoza
Systems
Representative
Pre-Merger HHI 1683.27
Compliance Officer,
Administration Head
Grace L. Gatdula
Post-Merger HHI 1692.01
and Contact for
Stakeholders
Concentration Moderately concentrated
Corporate Secretary A. Bayani K. Tan
Change in HHI 8.74
Assistant Corporate
Jason C. Nalupta
Secretary Antitrust Action No action
Source: PSE

Figure 24: LOTO Net Income Upon computing the HHI, it is found that the casino and gaming market is already
moderately concentrated. However, as the change in HHI does is only 8.74
600
(<100), there will be no action taken by the PCC as this merger and/or acquisition
500
does not substantially lessen or constrict competition.
400
300
The current proposed transaction involves Alliance Global’s acquisition of Pacific
200
Online Systems Corporation, whose majority of shares are owned by Belle
100
Corporation through its subsidiary, Premium Leisure Corporation.
0
2014 2015 2016 2017 2018

Source: Pacific Online Systems Corporation

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7
 While it is noted that both Alliance Global and Belle Corporation are among the
shareholders who control most of the casino and gambling industry, the review finds that
the transaction does not lead to substantial lessening of competition in the casino and
Figure 25: Philippine Casino
gambling markets as Pacific Online only accounts for a small percentage of the
Gaming Revenue gambling market. Specifically, our merger review of the Alliance Global-Pacific Online
250
Systems Corporation showed the following findings:
200
150
Market for casino services: (i) sufficient competitive constraints remain from other
casinos; (ii) consumers have strong buyer power and are able to switch easily among
100 different casinos; and (iii) the transaction will not increase the likelihood of , or
50 strengthen existing, coordination among market players.
0
Market for gambling and online gaming technologies: (i) the merging parties do not have
20 3

a substantial increase in the overall gambling market share as casinos primarily

14
1

15
16
20

17
18
20

19
20

dominate the gambling industry; and (ii) sufficient competitive constraints remain from
20
20
20

other market participants.

Source: PAGCOR

Acquiring firm AGI is engaged in a diverse sectors of business, from real estate,
Figure 26: Philippine Casino alcoholic beverages, to gaming and leisure, and quick-service restaurants. AGI owns
Gaming Revenue by Category
Resorts World Manila through its subsidiary, Travellers, and only takes up about 15% of
the total casino market share.
Integrated
Resorts -

1% 5%
Entertainment On the other hand, Pacific Online Systems Corporation is owned by Belle Corporation
City
through its subsidiary, Premium Leisure Corporation, and is primarily engaged in online
PAGCOR
Casinos gaming technologies. While Belle Corporation is in the business of owning shares in
19% casinos and other gaming related subsectors, Pacific Online only accounts for less than
1% of Belle Corporation's revenues and even less in the overall gambling market.
Thunderbird
75% Casinos
Belle Corporation is a holding company heavily involved in the gaming business,
particularly in the casino industry. It has majority ownership of Pacific Online Systems
Casinos in Clark
corporation with 51% ownership through its subsidiary, Premium Leisure Corporation.
Source: PAGCOR Premium Leisure Corporation owns shares in various casinos and gaming
establishments, while Pacific Online Systems Corporation primarily leases gaming
technologies and sells gaming equipment.

NO Substantial Lessening of Competition (SLC)

The merger and acquisition of AGI and LOTOt pose no substantial lessening of
competition on the industry grounded on the team analysis of competitive environment
and the findings of Porter’s Five Forces. This is premised on the finding that there will
remain sufficient competitive constraints posed by larger competitors in the said market
both local and international market players, and a high concentration of gambling
industry, pre- and post-transaction. Additionally, the acquisition will result no change in
the structure of ownership or control in either party .

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8
Appendix 1: Alliance Global Inc. Income Statement

In Million Pesos 2018A 2019A 2020E 2021E 2022E 2023E 2024E

Gross Revenue 151,452 174,563 201,201 233,393 270,736 314,053 364,302

Gross Expense 118,148 136,999 157,903 186,714 216,588 251,243 291,441

GROSS PROFIT 33,304 37,564 43,297 46,679 54,147 62,811 72,860

Non-operating
income 5,322 5,425
EBITDA 38,626 42,989 43,297 46,679 54,147 62,811 72,860

Non-operating
expenses (Interest) 6,853 7,121 7,121 7,200 7,200 7,200 7,200
EBITDA
Depreciation
Interest
EBT 31,773 35,868 36,176 39,479 46,947 55,611 65,660
Tax Expense 8,108 8,770 8,845 9,870 11,737 13,903 16,415
Net Income 23,665 27,098 27,331 29,609 35,210 41,708 49,245
Source: Alliance Global, Inc. - Company Disclosures

Assumptions:

Revenue growth 15.26% 15.26% 16%

COGS % of 78.01
revenue % 78.48% 78.48% 80%

Interest 6,853 7,121 7121 7200

25.52
Tax rate % 24.45% 24.45% 25%

Alliance Global continues to grow as revenues surged at 15% with all segments of the Group
reporting favorable performance. However, costs and expenses have also accelerated in growth.
Other operating expenses also jumped due to increased spending in interests, selling and marketing
expenses, and general marketing expenses. Net profit totaled Php 27.1 billion, up by 15% compared
to the previous year. Assuming the revenue growth will continue, Alliance Global may enjoy at the
very least a 16% year-to-year growth.

During a pandemic, all companies are vulnerable, especially Alliance Global’s leisure and tourism,
and casino subsidiaries. In particular, these segments are vulnerable to sudden lockdown regulations
imposed by the Philippine government. However, due to Alliance Global diversified products and
services with the majority of the revenues coming from real estate, Alliance Global may be able to
weather the storm. Although companies may be losing money now, due to the high liquid and large
amounts of cash reserve of the Company, the pandemic may prove to be an opportune time to merge
and acquire companies to strengthen the company and also be able to merge or acquire at a
discounted price.

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9
Appendix 2: Results of Operations by Subsidiary Groups
(in millions pesos)

2019 MEG EMP RWM GADC Others TOTAL

Revenues 67313 51547 29062 32255 5160 185337

Intercompany/
Adjustment -492 -40 -624 - -4192

Consolidated 66821 51507 28438 32255 968 179989

% contribution 0.37 0.29 0.16 0.18 0.01 1

Costs and
Expenses 41935 43067 28031 29450 2641 145124
Intercompany/
Adjustment -30 -634 -223 -104 -14

Consolidated 41905 42433 27808 29346 2627 144119

Tax expense 6082 1647 91 911 39 8770

Net profit 19296 6833 941 1894 2479 31443

Intercompany/
Adjustment -462 594 -401 104 -4178

Consolidated 18834 7427 540 1998 -1699 27100

% contribution 0.69 0.27 0.02 0.07 -0.06 1

Net profit to
owners 17931 6726 945 1889 2480 29971
Intercompany/
Adjustment -5900 -414 -880 -859 -4196

Consolidated 12031 6312 65 1030 -1716 17722

% contribution 0.68 0.36 0 0.06 -0.1 1

Source: Alliance Global Inc. – Company Disclosures

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Appendix 3: Alliance Global Inc. Balance Sheet
In Millions
Pesos 2018A 2019A 2020E 2021E 2022E 2023E 2024E
Current
assets 280,123 301,176 328,552 358,614 391,428 427,243 466,336
Noncurrent
assets 308,116 339,269 1,069,540 1,167,403 1,274,220 1,390,811 1,518,071

Total assets 588,239 640,445 699,046 763,008 832,824 909,027 992,203

Current
liabilities 94,825 130,698 534,584 609,426 694,745 792,010 902,891
Noncurrent
liabilities 202,852 216,660 653,380 744,854 849,133 968,012 1,103,533
Total
liabilities 297,677 347,358 395,988 451,426 514,626 586,674 668,808

Total equity 290,562 297,117 303,059 309,121 315,303 321,609 328,041

Total
liabilities and
equity 588,239 644,475 699,047 760,547 829,929 908,283 996,849

Assumptions
Current
assets % of
total asset 47.62% 47.03% 47.00% 47.00% 47.00% 47.00% 47.00%
Noncurrent
asset % of
total asset 52.38% 52.97% 53.00% 53.00% 53.00% 53.00% 53.00%
Total asset
growth 8.15% 9.15% 9.15% 9.15% 9.15% 9.15%

Current
liabilities % of
total liabilities 31.85% 37.63% 35.00% 35.00% 35.00% 35.00% 35.00%

Noncurrent
liabilities % of
total liabilities 68.15% 62.37% 65.00% 65.00% 65.00% 65.00% 65.00%
Total
liabilities
growth 14.30% 14.00% 14.00% 14.00% 14.00% 14.00%

Total equity
growth 2.21% 2.00% 2.00% 2.00% 2.00% 2.00%

Source: Alliance Global Inc. – Company Disclosures

Current assets such as cash and cash equivalents increased due to net cash flows generated by
revenues and proceeds from debts. Noncurrent assets such as property, plant and equipment rose,
mainly due to the set up of right-of-use assets, capital additions, and the ongoing Phase 3 operations
of Resorts World Manila, an asset owned by Alliance Global.

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Appendix 4: AGI Financial Ratios
2017A 2018A 2019A

LIQUIDITY ANALYSIS RATIOS

Current ratio 2.58 2.95 2.3
Quick ratio 1.19 1.28 1.05
Solvency ratio 2.05 1.98 1.86

FINANCIAL LEVERAGE RATIOS

Debt ratio 0.49 0.51 0.54
Debt-to-equity ratio 0.95 1.02 6.7
Interest Coverage 6.19 8.78 6.7
Asset to equity ratio 1.95 2.02 2.17

PROFITABILITY RATIOS
Gross Profit Margin 0.44 0.43 0.44
Net Profit Margin 0.16 0.16 0.16
Return on Assets 0.04 0.04 0.04
Return on Equity 0.08 0.08 0.09
Price/Earnings Ratio 10.9 4.85 4.05

Source: Alliance Global Inc. – Company Disclosures & Team Analysis

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Appendix 5: Pacific Online Income Statement
In Million Pesos 2017A 2018A 2019A
REVENUES
Gross Revenue 135,644 1,935 989
Non-operating income 3,144 233 32
TOTAL 138,788 2,168 1,021
COSTS AND EXPENSES
Gross Expense 103,062 1,614 1,370
Non-operating expenses
(Interest) 6,883 6 7
Others (net) 65 41
EBT 28,842 482 (395)
Tax Expense 6,566 131 7
Net Income 22,275 304 (320)
Net Income Attributable to
Parent Equity Holder 15,192 302 (319)
EPS (Basic) 1.5 0.3579 (0.3781)
EPS (Diluted) 1.5 0.3579 (0.3781)
Source: Pacific Online – Company Disclosures
Assumptions
Revenue growth -48.89%

COGS % of revenue 83.41% 138.52%

Interest 6 7
Tax rate 27.18% -1.77%

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Appendix 6: Pacific Online Balance Sheet
In Million Pesos 2018 2019
ASSETS
Current Assets
Cash and cash equivalents 571 337
Marketable securities 156 140
Trade and other receivables - net 285 173
Other current assets 145 214
Total Current Assets 1,157 865
Noncurrent Assets
Investments in stocks 456 348
Property and equipment - net 260 107
Right-of-use assets 50
Goodwill 17
Deferred tax assets - net 53
Retirement benefits asset 8
Other noncurrent assets 206 290
Total Noncurrent Assets 946 848
TOTAL ASSETS 2,103 1,713
LIABILITIES AND EQUITY
Current Liabilities
Trade and other current liabilities 245 144
Loan payable 150
Lease liabilities 58
Current portion of obligations 19
Withholding taxes payable 6 3
Income tax payable 9 4
Current portion of installment payable 9
Total Current Liabilities 289 360
Noncurrent Liabilities
Lease liabilities - net of current portion 9
Obligations under finance lease - net
of current portion 16
Defined benefit liability 30
Deferred tax liabilities - net 37
Total Noncurrent Liabilities 53 39
Total Liabilities 342 399
Equity Attributable to Shareholders
Capital stock 448 895
Additional paid-in capital 257 257
Treasury stock (285) (285)
Stock dividend distributable 422
Fair value reserve (289) (397)
Retirement benefits reserve 0.5 (18)
Retained Earnings 1,200 855
Equity Attributable to Shareholders 1,754 1,308
Non controlling interest 7 5
TOTAL EQUITY 1,761 1,313
TOTAL LIABILITIES AND EQUITY 2,103 1,713
Source: Pacific Online – Company Disclosures

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Appendix 7: Competitors Assessment
In order to strengthen our competitive analysis for Pacific Online Systems Corporation, we have
identified their main competitors in the country and measured their overall competitiveness taking into
account important criteria in the industry.

Company Business Model Main Markets Industry Rating

Pacific Online Tech and Market Visayas, Mindanao

Systems Corp Expertise for 3.8
distribution of lottery
products

Philippine Gaming Lottery Equipment Luzon

Management and Tech Support 3.9
Corporation

Jade Entertainment Gaming Entire Philippines

and Gaming Technologies 3.7
Technologies, Inc.

Provides technical and

market expertise for the Involved in the business The company is an
distribution of lottery of leasing on-line lottery accredited supplier of
products specifically in equipment and provide gaming machines,
Visayas and Mindanao in software support for the systems, and other
partnership with the state- Philippine Charity related equipment by the
run Philippine Charity Sweepstakes Office. A Macao Gaming
Sweepstakes Office. Their Philippine government Inspection and
core is in providing agency responsible for Coordination Bureau.
operating and lottery and sweepstakes Jade is also a member of
management systems for in the Luzon Region. As the Arriba Supplier
the lottery industry of the of 2019, PGMC have Network, one of the
Philippines. installed more than 5,000 world's largest business
terminals all over Luzon. network.

Source: Team Analysis

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 Appendix 8: PESTLE Analysis
A PESTLE Analysis was prepared in furtherance of the evaluation of external factors that influence
Alliance Global Inc.’s current situation. In addition, the analysis is a valuable insight of the competitive
environment of the Resort and Casino Industry.

• Philippine political stability index was reported at - 0.88496 in 2019 which implies that perceptions of the
likelihood that the government will be destabilized or overthrown by unconstitutional or violent means is
Political
low. The Philippine constitution laws and regulations with regards to licensing and taxation of gambling
casinos, gaming clubs, and other similar recreation or amusement establishments in the country.

• In terms of importance of Resorts & Casinos sector in the country's economy, the revenues of the said
sector was pegged around P248.5 billion in 2019, a 15.1 percent improvement over 2018’s revenues
and nearly 41 percent higher than 2017’s. Resorts World Manila contributed P29 billion to the total
revenue of the sector, and amid the pandemic posts P566 million revenue in2Q20. The Philippine
economy has taken a severe hit due to COVID-19 however the country’s economy is slowly getting back
Economic on track due to easing of lockdown measures. The Philippine gaming industry can make huge
contributions to the economy by boosting tourism and tax revenues and job creation.

• Gambling in the Philippines has been present in the country since at least the sixteenth century. Various
forms of gambling have been introduced and improved and continues to spread and prevail all over the
Social
country. Filipinos who engage in gambling want a quick-fix solution to poverty; and that attitudes towards
gambling are positively related to availability and cultural acceptability.

• COVID-19 has raised the importance of technology which is why Alliance Global Inc. is ramping up
digitalization strategy such as new cashless technology in their resort and casinos. “Cashless and
contactless” technology for financial transactions by casino players is likely to be a growing business
Technological segment amid the Covid-19 pandemic. Moreover, demand for contactless player funding technologies
has an upward trajectory, a good investment opportunity.

• Due to the different lockdown measures imposed by the Philippine government, resort and casinos were
forced to close however, just recently, some Manila casinos, including those within Entertainment City’s
integrated resorts, have been granted permission to resume operations at 30% capacity. Additionally,
Bayanihan to Recover as One Act was recently signed by the president which provides Covid-2019
response and recovery interventions and mechanisms to accelerate the recovery and bolster the
Legal
resiliency of the Philippine economy. Also, the country has its own Inter-Agency Task Force on
Emerging Infectious Diseases (IATF-EID) responsible for affairs concerning emerging infectious
diseases in the Philippines such as health guidelines.

• The Philippines is known to be home of POGOS operated by Chinese. Many POGOs have been
flouting our laws, not paying the correct taxes, skirting immigration authorities and local governments,
even violating the rules and regulations and health guidelines set by the Inter-Agency Task Force on
Environment Emerging Infectious Diseases which somehow affects the operations of legal Casinos and gambling
establishment in the country.

Source: Team Analysis

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Appendix 9: Gambling Industry
GAMBLING INDUSTRY
SECTORS
(In Million Pesos) 2016 2017 2018 2019

Electronic Gaming Sites 24,063 23,631 28,310 26,800

Casinos 134,056 152,554 171220 216,000
Offshore Gaming 319 6,110 5,700
TOTAL 158,119 176,504 215,600 248,500
Source: IMF
Assumptions:
▪ Of the 152.56 billion pesos in 2017, 72% are from casinos in Entertainment City and Newport
combined, 23% from PAGCOR casinos, 5% are from casinos in Clark, Pampanga, and 1% from
Thunderbird casinos in Rizal and La Union.
▪ By revenue contribution, industry GGR in 2017 came mainly from Casinos (86.4%), electronic
gaming sites (13.4%), offshore gaming (1%)
▪ PAGCOR expects gaming income to soar 11.7% in 2019

Despite the gambling industry sector containing both casino and gaming subsectors, bulk of the
revenues in the gambling sector come from casinos. This is relevant as Pacific Online Systems
Corporation is a company owned by Belle Corporation through its subsidiary. Belle Corporation
holds significant ownership of City of Dreams Manila which is a competitor of Resorts World
Manila, which is owned by Alliance Global.

The gaming segment of Alliance Global is Resorts World Manila (RWM). RWM has market shares
amounting to 15.6% of the total casino subsector of the gambling sector. The total casino
subsector is used as the Company and Target are owned by parent companies whose gaming
revenues are primarily from casinos, as shown in the table above where Pacific Online Systems
Corporation only composes .35% of the market share compared to the larger market shares owned
by other companies who own casinos. (Refer to Appendix 9)

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17
Appendix 10: Herfindahl-Hirshman Index
In Million Pesos
Pre Merger Post Merger
Market Market
Company 2018 2019 Growth Share Share
AGI 160874 185337 14.81%
-RWM 22522 29062 26.89% 15.62% 15.97%

Belle Corporation 8,515 7,500 7.20% 3.47% 3.12%

-Pacific Online 1,560 766 -31.19% 0.35% MERGED
Melco Resorts
and
Entertainment
(PH) Corporation 32,425 31,306 -5.65% 14.49% 14.49%
Bloomberry
Resorts
Corporation 54,283 64,523 14.72% 29.87% 29.87%
Universal
Entertainment
Corp. 33,005 15.28% 15.28%
Other Casino-
based
corporations 33,905 20,679 9.40% 9.57% 9.57%
Private casino
sector 151,650 186,075
Total casino
subsector 187540 216,000 18.63% 100.00% 100.00%
Source: IMF & Team Analysis
RESULTS
Pre-Merger HHI 1683.27

Post-Merger HHI 1692.01

Concentration Moderately concentrated

Change in HHI 8.74
Antitrust Action No action

ANTIRUST LAWS
POST MERGER CHANGE ANTITRUST
HHI CONCENTRATION IN HHI ACTION
Less than 1,000 Not concentrated Any amount No action
Between 1,000 Moderately Possible antitrust
and 1,800 concentrated 100 or more challenge
Antitrust challenge
Greater than 1,800 Highly concentrated 50 or more virtually certain

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Appendix 11: Revenue and Cost Synergies
In Millions
Pesos 2018A 2019A 2020E 2021E 2022E 2023E 2024E
Gross
Revenue 151,452 174,563 201,201 234,382 272,876 317,534 369,342
Gross
Expense 118,148 136,999 157,903 187,655 218,451 254,178 295,624
GROSS
PROFIT 33,304 37,564 43,297 46,726 54,425 63,357 73,718
Non-
operating
income 5,322 5,425
EBITDA 38,626 42,989 43,297 46,726 54,425 63,357 73,718
Non-
operating
expenses
(Interest) 6,853 7,121 7,121 7,200 7,200 7,200 7,200
EBT 31,773 35,868 36,176 39,526 47,225 56,157 66,518
Tax
Expense 8,108 8,770 8,845 9,882 11,806 14,039 16,630
Net Income 23,665 27,098 27,331 29,645 35,419 42,118 49,889

Assumptions

Revenue
growth 15.26% 15.26% 16% 16% 16% 16%

-Revenue
Synergies 989 993 998 1,002

-Revenue
Synergies % 0.42% 0.45% 0.45% 0.45%
COGS % of 78.01
revenue % 78.48% 78.48% 80% 80% 80% 80%

-Cost Synergies (150) (150) (150) (150)

Interest 6,853 7,121 7121 7200 7200 7200 7200
25.52
Tax rate % 24.45% 24.45% 25% 25% 25% 25%
Source: Alliance Global Inc.. – Company Disclosures & Team Analysis

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Disclosures
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the
securities or financial instruments of the companies. The author(s), or a member of their household,
of this report does not know of the existence of any conflicts of interest that might bias the content
or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory
board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to
the public and believed by the author(s) to be reliable, but the author(s) does not make any
representation or warranty, express or implied, as to its accuracy or completeness. This information
does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any
securities or related financial instruments

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