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$1-billion deal struck to sell back PAL

Posted on September 09, 2014

SAN MIGUEL Corp. will sell back its holdings in Philippine Airlines Inc. (PAL) to billionaire Lucio C. Tan, two years after the nation’s largest company invested in the flag carrier and took management control.

The two companies signed an agreement yesterday, San Miguel President Ramon S. Ang said in a mobile-phone text message. The deal is valued at $1 billion, according to people familiar with the transaction, who asked not to be identified as the information isn’t public.

San Miguel, in 2012, bought an indirect 49% stake in Philippine Airlines and affiliate Air Philippines for $500 million.

The purchase ends speculation about Mr. Tan’s interest in aviation and gives him full control of the airline when it’s expanding flights after the US restored the highest air-safety rating on the country in April.

The stake sale is also a walk back from a diversification spree for San Miguel, the country’s most acquisitive company since at least 2008, whose core businesses include oil and food.

“You really can’t have two drivers,” Jomar Lacson, head of research at Campos Lanuza & Co. in Manila, said by phone.

“Once control returns, (Mr.) Tan must be able to continue to invest in the company the same way (Mr.) Ang has done. It will be a big negative for the airline if the trend reverses.”

Shares of PAL Holdings Inc., the airline’s parent, rose 4.4% to P6 at the close in Manila, its highest price since Jan. 23. The news of the stake sale came after the stock market closed for trading. San Miguel gained 0.1% to P77.85. The benchmark Philippine Stock Exchange Index rose 0.7%.

Mr. Tan, the Philippines’ second-richest man, last year said he was considering offers for his 51% stake in the carrier, signaling a potential exit from the airline industry after two decades.

Mr. Ang on Aug. 1 said Mr. Tan had offered to “buy us out.”

PAL Holdings had a net income of P1.47 billion last quarter, reversing a P1.06-billion loss a year ago. The carrier has been revamping its fleet, including last year’s agreement to acquire at least 64 planes from Airbus Group NV. In July, it expanded a code-sharing agreement with Etihad Airways PJSC and announced plans to start flying to New York this year. The airline resumed flights to London late last year after it stopped flying to Europe in 1998.

The US Federal Aviation Administration restored the Philippines to the agency’s highest air-safety rating in April, six years after the country was downgraded, allowing PAL to add new routes and fly more often to the US. Last year, the European Union lifted a three-year-old flight ban on the flag carrier. -- Bloomberg