San Miguel signs $1-B deal to sell PAL stake back to Lucio Tan group – source

(Updated 10:47 a.m., Sept. 9) San Miguel Corp., the Philippines' most diversified conglomerate, has agreed to a $1-billion deal to sell its stake in Philippine Airlines (PAL) back to the group, its chief executive said on Monday.

 

"Yes, sold," Ramon Ang said, confirming an earlier report that San Miguel had signed the deal.

 

Ang did not give more details but a source with knowledge of the deal said San Miguel and a group owned by Filipino-Chinese billionaire tycoon Lucio Tan have signed an agreement of intent to complete the sale. The deal covers the conglomerate's indirectly held shares in the airline, equal to nearly half of the carrier, plus loans and advances.

 

The agreement is subject to conditions set by San Miguel, including delivery of the total payment amount of $1 billion in a week, said the person, who wasn't authorized to discuss the matter with media and spoke on condition of anonymity.

 

San Miguel owns 49 percent of the parent of listed holding company, PAL Holdings Inc., that in turn controls around 90 percent of the airline, which has a market value of about $3.4 billion.

 

The conglomerate bought its stake in the flag carrier from Tan for $500 million in 2012, giving the conglomerate management control of PAL and affiliate Air Philippines.

 

PAL shares climbed 4.35 percent earlier on Monday as San Miguel edged up 0.13 percent, against a broader market gain of 0.71 percent.

 

Trades in PAL reached 639,200 shares, more than seven times its 30-day average trading volume.

 

Change of heart?

To fund the buyback, the Tan group is borrowing about $800 million from a syndicate of banks that include BDO Universal Bank, China Banking Corp., Asia United Bank and Tan's own Philippine National Bank. The remaining amount will be covered by Tan's existing cash flow, sources with knowledge of the deal said. They asked for anonymity because they were not authorized to speak publicly about the deal.

 

The sources also said the Tan group wants to invite another investor in the airline later, allowing the group to repay part of its bank loans, which were guaranteed by shares in several Tan-owned companies, including PAL.

 

Ang did not say why the two parties decided to end their partnership in PAL. But unconfirmed reports in local media suggested Tan had changed his mind about giving up management control of the airline following aggressive expansion plans and internal changes that Ang introduced, including an early retirement plan that will eventually lead to Tan losing his most trusted employees.

 

A few months after taking control of the airline in 2012, Ang had unveiled a $10-billion program as he sought to retire old jets with wide-bodied planes to beef up long-haul flights and expand domestic services.

 

The plan was to add 100 new jets to the carrier's fleet within a period of five to seven years to make PAL competitive and profitable as rivals led by Philippine budget carrier operator Cebu Air Inc made their own aggressive expansion moves.

 

Last month, PAL Holdings said in a stock exchange filing that it posted a net income of P1.5 billion ($34 million) in the three months to June against a net loss of P1.1 billion a year earlier.

 

The extra money from the sale of its stake in PAL would boost San Miguel's cash stash that it could tap to fund new investments, including acquisitions. Ang had told Reuters last month San Miguel could concentrate more on its food business if it exits from PAL.

 

San Miguel, which started as a brewery more than a century ago, has in capital-intensive power generation and distribution, oil refining, mining, telecom, infrastructure such as airports and roads, and airline businesses since 2008. – Reuters