SMC acquisition of PAL ‘imminent’

By: Daxim L. Lucas, Paolo Montecillo
Philippine Daily Inquirer
February 24th, 2012  

San Miguel Corp.’s (SMC) acquisition of a “significant minority stake” in flag carrier Philippine Airlines (PAL) is, for all intents and purposes, a done deal with an official announcement set to be made in the coming days.
Sources from both camps familiar with the negotiations between tycoon Ramon Ang and the country’s second richest man, Lucio Tan, described the deal as “imminent,” adding that only “minor details and final touches” remained to be ironed out between both businessmen.

The SMC conglomerate is set to acquire a 49-percent stake in PAL for an estimated $500 million, which will come in the form of an equity infusion, resulting in a dilution of Tan’s stake. SMC will also be given management control of the airline.

The deal is being likened to Tan’s divestment of half his stake in Fortune Tobacco Corp. to form a joint venture with multinational cigarette maker Philip Morris International in 2010.

In that transaction, management control of the merged entity was also handed over to the acquiring party.
PAL—the first airline to offer commercial services in Asia—has also seen its market share eroded in recent years by the entry of no-frills carriers like Cebu Pacific of the Gokongwei family.

According to sources, an initial agreement between San Miguel president Ang and Tan was sealed as early as late last year and would have been concluded last month were it not for a last-minute expression of interest by telecommunications tycoon Manuel Pangilinan.

Pangilinan—who also runs Hong Kong-based First Pacific Group of Indonesia’s Salim family—was said to have offered Tan $700 million for a 100-percent stake in the airline.

The offer was said to have divided Tan’s close advisers with the taipan having decided to favor Ang with the deal only in recent days.

Officials from both camps declined to speak on the record about the transaction.

Ang said: “We are still in talks with them.”

Yesterday, PAL spokesperson Cielo Villaluna confirmed months of speculation surrounding the nation’s oldest carrier.

“Talks are definitely going on,” Villaluna told the Inquirer.

She clarified, however, that discussions were at the shareholder level and that the company as an entity was not directly involved.

She declined to give details, saying that the company would issue public disclosures at the appropriate time, or once any deal is signed.

Villaluna added that she was not aware if PAL’s shareholders were in talks with other groups aside from SMC.

Earlier this month, PAL’s parent company PAL Holdings reported a net loss of P3.6 billion for the April-to-December period of 2011—the first three quarters of the airline’s current fiscal year. This was a reversal from more than P3 billion in profits a year before.

The losses were caused by high fuel prices and labor issues in late 2011 that prevented PAL from cashing in on the holiday season last December.

PAL said total expenses rose 12 percent, driven mainly by the higher cost of jet fuel, which averaged $133 a barrel in 2011 from $98 in 2010.

At the end of 2011, PAL said jet fuel accounted for more than 50 percent of total expenses, up from 39 percent a year earlier.