Conglomerate San Miguel has finished its due diligence on Philippine Airlines (PAL) and a deal to add the flag carrier to its business portfolio via a USD$500 million acquisition is almost certain, sources said on Monday.
San Miguel, which has aggressively expanded into capital-intensive sectors such as infrastructure, power, mining, and telecoms in less than four years, has offered to buy a 49 percent stake in PAL for USD$500 million, said one source with knowledge on the talks. The deal also gives San Miguel management control of the airline.
"The due diligence is finished," a second source said.
San Miguel and the group of Lucio Tan, majority owner of the airline, in late December signed a memorandum of understanding prior to due diligence. The agreement carried a provision that the Tan group would be talking exclusively to San Miguel on the proposed deal.
But the business group of Manuel Pangilinan, chairman of the Philippines' largest listed firm, PLDT, and chief executive of the telco's parent, Hong Kong's First Pacific, made a counteroffer to buy into PAL, two of the sources said.
Media reports have said Pangilinan made an offer of USD$700 million for 100 percent ownership of the airline. Pangilinan has repeatedly declined to comment on the matter.
In October last year, PLDT completed a USD$1.6 billion takeover of Digital Telecommunications Philippines Inc, a sister firm of Cebu Air, the country's largest budget airline and PAL's main rival on regional and domestic routes.
Officials of San Miguel were not available for comment. Ferdinand Constantino, corporate information officer, said he did not have any information when asked if San Miguel had finished its due diligence on the airline.
A third source said the San Miguel group was intent on acquiring management control of the airline despite the lack of a controlling stake. San Miguel's president, Ramon Ang, has repeatedly said the group prefers to get management control in any new investment.
The talks involve San Miguel and PAL's principal shareholder Tan, and do not include the airline itself, PAL's president, Jaime Bautista, said on Friday.
"There has been a lot of chatter about ongoing negotiations for the sale of PAL shares. But I want to make it clear that any talks or negotiations are just between our principal shareholders and the SMC group. PAL management is definitely not part of it," Bautista said in a statement, adding the airline's officers are not privy to the ongoing talks.
Shares of PAL Holdings, Tan's investment firm that holds his group's stake in the airline, gained 1.27 percent on Monday in light trade against the broader market's 1.9 percent decline. Its shares have risen more than 12 percent this year, largely in line with gains in the main index.
If the deal pushes through, San Miguel will be the single largest shareholder in the airline. Tan currently owns about 85 percent of PAL via his wholly-owned firm Trust Mark Holdings. The rest is held by employees, other Tan-held companies, and the government through a state firm.
In January, Tan told reporters he would be willing to sell his stake in the airline "if the price is good."
Labour problems, tough competition from budget airlines and high fuel prices have dimmed prospects for PAL, which briefly closed in 1998 due to the weight of its debt and labour problems. It reopened after creditors agreed on a debt restructuring plan.
PAL still carries around USD$900 million worth of debt, but has significantly reduced the load from more than USD$2 billion at the height of its financial and labour problems.
Last year, some PAL workers walked off the job to protest the carrier's plan to outsource 2,600 positions in its airport services, catering and call centre operations, part of a survival plan it launched in 2010 after incurring losses in 2008 and 2009.
The airline recorded a net loss of USD$33.5 million in the three months ending December 31 against net income of USD$15.1 million a year earlier.