SMC signs deal to buy stake in PAL

Philippine Daily Inquirer
April 5, 2012
By Doris C. Dumalo


DIVERSIFYING San Miguel Corp. has signed as $500-million deal to acquire a significant stake in flag carrier Philippine Airlines and affiliate budget carrier Air Philippines Corp., thus teaming up with the Lucio Tan group for the modernization and refleeting of the carriers.

  In a statement jointly issued by the Lucio Tan camp and SMC, the two groups said the new partnership would "allow the two airlines to strenghten operations and stay competitive with the implementation of PAL and AirPhil's fleet modernization program."

  Under the deal, SMC will buy into PAL and AirPhil through several layers of holding comapnies. This will lead to SMC's acquisition of 49 percent of PAL's publicly listed parent firm PAL Holdings that, in turn, will give it an effective control of a least 40 percent of PAL, according to SMC president Ramon S. Ang. He added that as part of the package,SMC would get 49 percent of Airphil.

  The SMC chief confirmed that SMC would pay $500 million to buy the indirect stakes in PAL and AirPhil. The conglomerate is also expected to exercise management control over the airlines. When asked when SMC would take over, Ang said it would be "after the (Lenten) Holidays."

  Ang, who had been in talks with Tan for the partnership for many years, said SMC welcomed "the opportunity to participate in the refleeting and modernization plans for the two airlines."

  "For Philippine Airlines, the entry of SMC may enhance its refleeting strategy given the cash-rich balance sheet of acquiring conglomerate. The airline may also explore potancial strategies with other key assets of research at local stockbrokerage Campos Lanuza & Co.

  San Miguel is involved with the modernization of the Godofredo P. Ramos airport on Caticlan, the main gateway to the world-famous Boracay Island. This was the first privatilized airport terminal operations in the Philippines. SMC has also expressed interest to participate in the bidding for other public-private partnership airport contracts.

  In making this investment, SMC is betting on a heavy influx of tourists in the coming years.

  Lacson said that for Tan, the deal might also open up opportunities to acquire a stake in San Miguel Brewery. Tan owns Asia Brewery, which offers some competition to SMB, the undisputed market leader in the local beer market, he pointed out.

  For veteran stock broker Ismael Cruz, president of IGC Securities, the most significant impact of the deal was that the national flag carrier would remain in Filipino hands.

  "SMC has said it will not break up the company. PAL being the first airline in Asia that means being Filipino, we will keep it as one airline company that will remain in Filipino hands," Cruz said.

  Manuel P. Pangilinan and tycoon John Gokongwei, whose family controls budget carrier Cebu Air, have likewise expressed interest in buying into PAL.

In a disclosure to the Philippine Stock Exchange yesterday, PAL's parent company PAL Holdings disclosed that its majority shareholder Trustmark Holdings Corp. had entered into investment agreements with a unit of SMC resulting in the issuance of shares to the San Miguel group, where the latter will take a minority stake in PAL Holdings.

  "The investment through Trustmark will be flowed down to Philippine Airlines, which is expected to strengthen and enhance the operations of the airline," the PAL Holdings disclosure said.

  The investment will be made by SMC through a wholly owned unit, San Miguel Equity INvestments Inc. (SMEII). Under the agreement, Trustmark and Zuma Holdings and Management Corp. (Zuma) - the holding companies of PAL and AirPhil - will issue new shares to SMEII.