SEC sides with Bengzon in The Medical City takeover

MANILA, Philippines (UPDATED) – The special hearing panel of the Securities and Exchange Commission (SEC) ruled in favor of former health secretary Alfredo Bengzon, as it slapped a P50-million penalty on majority shareholders of The Medical City who took over the company by means of a boardroom coup.

The SEC said on Monday, November 25, that it issued a resolution last Friday, November 22, imposing fines against companies of Jose Xavier Gonzales – Bengzon's nephew – and Singapore-based equity fund company Viva Holdings for violating 3 sections of the Securities Regulation Code.

The panel found that Gonzales circumvented provisions on tender offers and placed minority shareholders at a disadvantage.

Gonzales' companies, namely Viva Healthcare, Viva Holdings, Felicitas Antoinette, and Fountel, were found to have acquired majority of shares of Professional Services Incorporated (PSI) – the company behind The Medical City – through omission of facts.

The SEC said that this misled the board of directors and other shareholders to approve the increases in the company's capital stock and allow the respondents to increase their shareholdings.

The companies managed to increase their collective shareholding to over 50% largely through subscriptions during the company's capital stock increases in November 2013, July 2014, August 2017, and October 2017, from one million to two million shares.

The companies intended to acquire 35% or more of the equity shares in PSI as early as 2013.

"The oneness of respondents, including their plan to acquire majority of the shares in PSI, was not communicated or could not be inferred during the BOD (board of directors) meetings, where increases in the company’s capital stock were discussed and approved," the SEC said.

The companies then went on to enter into a cooperation and shareholders agreement, where Viva and Fountel brought their interests up to 25% each. They further agreed to "subsequently continue to work together to increase their respective shareholdings in PSI."

The directors and other shareholders of PSI only learned about the deal in 2017, as a consequence of a failed negotiation for Ayala Healthcare to acquire shares in the company.

The panel also found that the companies "adroitly circumvented" the prevailing rules to avoid requirements of a mandatory tender offer.

Bengzon, founder and longtime chief executive officer of PSI, said his camp is "extremely gratified" that the SEC ruled in their favor.

"As a result of the fraud perpetrated by the Gonzales companies and Viva Holdings, we have suffered significant losses in the value of our investment in The Medical City; and more importantly, in our voice to direct the course of this institution, which we have grown over the decades into the country's largest healthcare network operating under a single brand," Bengzon said.

The Gonzales group can still appeal the SEC's decision.

Moreover, the decision imposes only administrative fines and does not overturn the current board.

Gonzales insisted that Bengzon was legally voted out of management at the hospital for costly mistakes.

"The current board and management of The Medical City were legally elected by the majority of shareholders, while Dr Bengzon holds no more than 1% of total shares. Since the new management took over, The Medical City has improved its financial position, become accredited by JCI International as one of the country's best hospitals, and won numerous industry awards," Gonzales said in an emailed statement to Rappler.

"This just goes to show how shareholders, acting together with a vision to create the country's best hospital network, can deliver on the promise of quality care and sustainable profitability given the right leadership in place," Gonzales added. –


Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.