Bloomberg News

San Miguel Set to Sign Philippine Air Stake Deal

April 03, 2012

A Philippine Airlines Inc. airplane sits on the tarmac at Terminal 2 of Ninoy Aquino International Airport (NAIA) in Manila, the Philippines. Photographer: Edwin Tuyay/Bloomberg

A Philippine Airlines Inc. airplane sits on the tarmac at Terminal 2 of Ninoy Aquino International Airport (NAIA) in Manila, the Philippines. Photographer: Edwin Tuyay/Bloomberg

San Miguel Corp. (SMC) is set to sign an about $500 million agreement today that will effectively give it 49 percent of Philippine Airlines Inc., according to three people familiar with the situation.

The brewer will also get management control and 49 percent of budget carrier Air Philippines Corp., said the people, who declined to be identified ahead of an official statement. Billionaire Lucio Tan controls the airlines at present.

Tan’s PAL Holdings Inc., Philippine Air’s biggest shareholder, rose to a record intraday high in Manila trading on speculation an accord may help the carrier bolster services amid rising competition from budget airline Cebu Air Inc. (CEB) and AirAsia Bhd.’s new local venture. A deal would also support San Miguel President Ramon Ang’s goal of doubling sales to 1 trillion pesos ($23.5 billion) by 2016 through expansion beyond its main food and drink business into travel, infrastructure and power.

“The next ballgame in the Philippines is in air transportation since there isn’t enough capacity,” said Jomar Lacson, an analyst at Campos Lanuza & Co. Inc. “San Miguel wants to be a conglomerate that’s a proxy of the Philippine economy.”

San Miguel, which was established as brewer in 1890, said in a statement today that it’s in talks about a possible investment in Philippine Air and Air Philippines. Philippine Air President Jaime Bautista said he was unable to comment as he was in a meeting when called by Bloomberg News today.

San Miguel Deals

PAL (PAL) Holdings, 98 percent owned by Tan, rose as much as 4.9 percent and was up 2.1 percent at 8.35 pesos as of the lunchtime break. San Miguel (SMC) rose 0.3 percent to 114.00 pesos. The company, based in Mandaluyong City, has dropped 2.4 percent this year, compared with a 16 percent advance for the Philippine Stock Exchange Index.

San Miguel has announced 25 deals worth a total of at least $4.76 billion since 2006 before today, according to data compiled by Bloomberg. The company expanded into industries such as oil, power, mining and infrastructure to triple the 7 percent return it used to earn from food and drinks alone.

Philippine Air, started in 1941, had a “total comprehensive loss” of $33.5 million in the quarter ended December as weak passenger demand and cargo markets pulled down sales, it said in February. PAL has direct and indirect shareholdings of 82 percent and 3.1 percent respectively in Philippine Air, according to a filing from the holding company in February.

Low-Cost Competition

Philippine Air has lost domestic market share to Cebu Air, which lured passengers with newer planes and cheaper fares. Competition has intensified with the entry of AirAsia’s Philippine unit last month.

Cebu Air, which flies as Cebu Pacific, carried 8.5 million domestic passengers in 2011, almost twice as many as Philippine Air, according to the Civil Aeronautics Board. Philippine Air flew 3.9 million people overseas compared with Cebu Air’s 2.5 million, data from the agency showed.

Operations at Philippine Air were hampered by a strike in September as employees protested the outsourcing of some services. The company expects to save $15 million from the move and sees “many opportunities” for more of the same, Bautista said Sept. 30.

Billionaire Tan

Tan and partners gained control of Philippine Air in 1992, when it was privatized. He is the nation’s second-richest tycoon behind Henry Sy with a fortune valued last month by Forbes at $3.5 billion. His other companies include Philippine National Bank, cigarette-maker Fortune Tobacco Corp. and Asia Brewery Inc., the country’s second-biggest brewer.

San Miguel, the biggest and most acquisitive company in the Philippines, said in February last year it plans to invest more than $4 billion to double revenue in five years by expanding ventures in energy and transportation and bidding for infrastructure projects.

The company’s Petron Corp. unit completed the $577 million acquisition of Malaysian assets from Exxon Mobil Corp., it said yesterday. San Miguel is planning “bigger” acquisitions in the region and is looking at energy assets in Indonesia and Australia, President Ang said in August.

Net income last year declined 13 percent to 17.5 billion pesos. That exceeded the 16.2 billion-peso average of five analysts’ estimates compiled by Bloomberg.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editors responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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