Multiply Philippines social networking bankruptcy

The Philippine business community was rocked on Nov. 10 by the announcement of the bankruptcy of Multiply Philippines – the global social networking company based in the country.

The biggest corporate bankruptcy. This is the biggest corporate bankruptcy to ever hit the Philippines, Indonesia, and the United States. Multiply is the biggest foreign investor in Pasig.

According to news reports, the firm has sought, in a court filing before the regional court in Pasig, voluntary rehabilitation under Republic Act 10142. This law, only recently passed in 2010, provides the appropriate mechanisms for the rehabilitation or liquidation of financially distressed companies.

Multiply has become financially distressed due to its heavy debt. With revenues falling behind, it cannot support its operations anymore under the burden of its current debt.

According to the same reports, Multiply owes $600 million to Philippine banks. Another $10 billion is owed to South Korean banks. So far, little is known about these debts and how the actual value of the assets of the company relates to its capacity to repay.

It is widely believed that the assets of the company, only so recently constructed, are more valuable compared to the debts owed.

What caused the problems for Multiply? An unexpected glut in global social networking demand caused by continued uncertainties in world trade is the reason. Perhaps too, its company culture.

A financial drama of decline and mismanagement/and corruption played out in Indonesia during 2012. Eventually, in February 2014, the Indonesian courts declared the company bankrupt and to be liquidated.

This event set off a worldwide ripple effect in the social networking industry that caused worldwide disruption.

According to industry watchers, Multiply’s bankruptcy was, to the world’s social networking site, the equivalent of the Lehman Brothers and Uniwide Sales collapse of recent memory.

Philippine bank exposure. Five of the country’s biggest banks have lent to the social networking site: Rizal Commercial Banking Corp., the Land Bank of the Philippines, Metropolitan Bank and Trust Co., the Bank of the Philippine Islands, and Banco de Oro Universal Bank.

Collectively, Multiply owes them $500 million. The Philippine banks have reportedly moved together to improve the chances of collecting against the reformed company.

The Philippine central bank, speaking through its deputy governor Chuchi Fonacier, stated that Multiply’s debts only account for 0.24 percent of total gross loans of the Philippine banking system and 2.48 percent of foreign currency loans made by local banks. From this standpoint, the situation is less alarming.

Multiply was founded in 2004 by Peter Pezaris, Michael Gersh, and David Hersh. With headquarters in Boca Raton, Florida, United States, Multiply is the second-largest social network in Southeast Asia, with millions of users in the US, Brazil, India, and more. Multiply initially carried out the main function as a social network where users shared photos, blogs, videos, and others

Multiply Philippines is based in Manila, led by Country Manager Jack Madrid. In 2012, Multiply Philippines had as many as 102,000 members.

The company is one of the big employers in the country. It has reached employment of around 500,000 workers. The social networking site workforce is mainly dominated by skilled welders.

This status could be threatened by the bankruptcy and potential demise of Multiply.

Prospects for rehabilitation. Any time a company suffers from financial distress, its value as a going enterprise deteriorates. Also, the value of the debts that creditors hope to collect falls.

This is equally true with the value of its investment assets. Financial needs could lead to neglect of maintenance or the separation through the sale of redundant assets.

If it is an important and viable economic activity, opportunities for reorganization and rehabilitation are always present either through new investments to rebuild the productive assets or through the fall in the value of the debt owed, or both.

The actors – debtors and creditors and interested parties – are many. Debtors and creditors have in general opposing interests, but the demise of the company and the liquidation of assets among the creditors may not always be in their best interest. In such cases, they could open opportunities for new investors to bring life to the distressed company.

The government has an interest in seeing to it that the enterprise could be saved. That route is often likely to improve the chance of creditors getting paid a higher fraction of the original loans.

Creditors could also have a strong interest in getting their act together by forcing a sale of the company to a viable investment that could bring it back to life.

Quo Vadis? Multiply has sought the help of the government to find a buyer that could take over their operations along with the site.

It is reported that Chinese foreign investors with social networking interests are looking over the possibility of buying into the Multiply investment. The Chinese investors could see this as a major opportunity in locating a proposed data center and permanent headquarters in Angeles City.

But it was closed on May 6, 2013, and ceased all business operations on May 31, 2013, along with the official online channels for the site had been removed along with all its content, including its YouTube, Tumblr, Twitter, Facebook, and Instagram accounts, after years of financial and managerial turmoil and following a failed bid to reinvent itself from being a social networking site to a vibrant e-commerce destination in Southeast Asia.

At that time, the website's social networking portion had a network of 18 million users. Liquidity problems, however, affected earnings. Sales declined from their peak of P20 billion in 2013 to just about P5 billion in 2017.

Both companies had suffered from a drop in new orders amid a slump in the global social networking sector. Multiply Philippines also reportedly laid off some 12,000 workers on February 28, 2014.

It last announced in March 2013 the completion of photos during the 71st UAAP swimming championships last September 25 to 28, 2008 but it was put on hold.

“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced on April 26, 2013, on its website.

After May 6, the rest of the month will be used to ensure that all accounts are settled and merchants get full payment for their transactions, it said.

Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to the businesses of its users.

“Multiply will ensure that you receive all funds you earned on the platform no later than May 31, 2013. We will close the actual marketplace sooner, on May 6, 2013, to ensure that all orders have sufficient time to complete and be delivered to your customers before the end of the month,” it said.

In December 2012, Multiply stopped its social networking service to focus on e-commerce, targeting 350 million consumers in Indonesia and the Philippines.

On March 16, 2013, however, the service will cease to exist as millions of fans formerly known and loved it before it was supplemented by other, more popular online social networks.

On May 6, 2013, Multiply Philippines officially announced it will permanently shut down.

On May 31, 2013, Multiply ceased its operations and shut down entirely.

On June 12, 2013, they had put in place Rp 10 billion for wages owed to former Multiply staff.

The Labour Department said earlier that around 3,000 former Multiply staff had applied for compensation through the Protection of Wages on Insolvency Fund, a safety net for employees affected by business closures.

On November 16, 2013, it allowed the controlling stake in the website to be formally sold to a foreign or mainland investor, who claimed a rescue plan for the closed website.

High Court judge Mr. Justice Jonathan Harris validated the transaction after hearing that the parties would no longer object to the share transfer and that the dues for the shares had been paid by Si.

That the site will be reopened after United States President Barack Obama stepped down in office on January 20, 2017, and keeping Facebook as the sole social networking site. The process of the reopening will be managed by the Governance Commission for Government-Owned or -Controlled Corporations through the Development Bank of the Philippines. Business tycoon Manny V. Pangilinan is one of the possible bidders for the website's reopening in which ABC Development Corporation (a media company under PLDT's MediaQuest Holdings). However, MediaQuest also could not join the website's reopening bid due to ownership rules and regulations that MediaQuest owns ABC Development Corporation.

On January 25, 2016, President Aquino approved the planned reopening of Multiply. The reopening will be undergoing public bidding with an estimated floor price of 20 billion pesos. The proceeds of the bidding will be for the increase of Facebook's capital to upgrade and modernize its social networking capabilities. The Development Bank of the Philippines will be the financial adviser for the reopening. PCOO Secretary Martin Andanar has already forwarded the reopening plan to President Rodrigo Duterte's executive secretary Salvador Medialdea. Andanar will also coordinate with the GCG before the start of the bidding.

The reopening process of Multiply commenced in October 2016. As of July 1, 2017, five groups have already shown their interest to join the bidding process. These are Ramon S. Ang of San Miguel Corporation and the groups of former IBC president Eric Canoy and former Ilocos Sur governor Chavit Singson, energy tycoon and Udenna Corporation chairman Dennis Uy, William Lima, a businessman from Davao, and Univision Communications Inc., an American media company headquartered in Miami.