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San Miguel, Lucio Tan groups seal PAL deal

MANILA, Philippines [UPDATED] - Two of the country's biggest and most high profile business groups have finally sealed their deal to transfer control and management of Asia's oldest carrier, Philippine Airlines (PAL), to diversifying conglomerate San Miguel Corp.

In a disclosure to the stock exchange on Wednesday, April 4, San Miguel said the "investment agreement" was signed in the evening of April 3.

Negotiations over this deal have been going on since December 2011, and up to the afternoon of April 3, taipan Lucio Tan reportedly remained hesitant and wanted more time to study the final deal offer.

The announced agreement involves an acquisition by a wholly-owned unit of San Miguel of the shares of Lucio Tan-led companies in holding firms that own majority shares in PAL and its budget airline unit, AirPhil Express.

San Miguel confirmed to the stock exchange on April 10 earlier media reports quoting a text message from San Miguel president and chief operating officer Ramon Ang that the 49% stake San Miguel acquired in PAL and AirPhil was "in the aggregate amount of $500 million.

In a separate disclosure, PAL Holdings, the listed parent of PAL, said the agreement involes a "minority" stake in PAL Holdings, the listed parent of PAL.

PAL Holdings said the investment agreement was between Trustmark Holdings Corp, the majority shareholder of PAL Holdings Inc, and San Miguel Equity Investments Inc (SEMII), a subsidiary of San Miguel Corp. 

Based on the statement of PAL Holdings, the funds that will be exchanged between the two groups will all--or mostly--be funneled to the airlines for their operations and expansion needs.

Lucio Tan controls the legacy airline through PAL Holdings's 85% stake in PAL, and AirPhil Express through his various holding firms. 

"PAL Holdings will issue shares that will result in the issuance of shares to SMEII where the latter will take a minority stake in the company. The investments through Trustmark will be flowed down to Philippine Airlines which is expected to strengthen and enhance the operations of the airline," PAL Holdings said.

Trading of the shares of PAL's listed holding firm PAL Holdings Inc had been sizzling in the days before the deal announcement. 

PAL management, which has stressed in the past that negotiations involved only Lucio Tan and the major shareholders, was only notified about its new investor Wednesday, April 4.

In a statement, PAL president Jaime J. Bautista said he welcomed the entry of San Miguel Corp since its planned investment would help the flag carrier in its refleeting program and make the airline more viable and competitive.

Bautista stressed that "a stronger PAL augurs well for the company, its shareholders and employees."

Below is the joint press release of San Miguel and PAL Holdings on Wednesday, April 4:

"San Miguel Corporation (SMC) and business taipan Lucio Tan last night (April 3, 2012) signed investment agreements that will result in the issuance of new shares to the diversified conglomerate for a minority stake in flag carrier Philippine Airlines Inc. (PAL) and low-cost partner Air Philippines Corporation (Air Phil).

"Under the agreement, Trustmark Holdings Corporation (Trustmark) and Zuma Holdings and Management Corporation (Zuma), the holding companies of PAL and Air Phil will issue new shares to San Miguel Equity Investments Inc., a wholly-owned subsidiary of SMC.

"Trustmark and Zuma are majority owned by Tan.

"Tan and Ramon S. Ang, San Miguel President and COO, said the new investment will allow the two airlines to strengthen operations and stay competitive with the implementation of PAL and Air Phil’s fleet modernization program.

"Ang said San Miguel welcomes the opportunity to participate in the refleeting and modernization plans of the two airlines."

According to Bloomberg's data, "San Miguel has announced 25 deals worth a total of at least $4.76 billion since 2006 before" this deal on PAL. -