Nov. 6 (Bloomberg) -- Philippine tycoon Manuel Pangilinan increased his stake in Manila Electric Co., ending a six-month battle with San Miguel Corp. for control of the nation’s largest utility. Manila Electric shares fell the most in three months.

Metro Pacific Investments Corp., which Pangilinan chairs, yesterday agreed to lend 11.2 billion pesos ($236 million) to First Philippine Holdings Corp. in exchange for an option to buy a 6.7 percent stake in the utility known as Meralco. The deal gives the 63-year-old control over a 41.4 percent stake through two companies, while San Miguel holds 27 percent.

“The fight for control, I think it’s over,” said Marvin Fausto, who helps manage the equivalent of $8 billion at Banco de Oro Unibank Inc. in Manila. The additional 6.7 percent stake “is all he needs.”

Meralco shares have more than tripled this year as the rivals built their stakes. When San Miguel bought its stake in October last year, First Philippine said it expected the food and drinks maker to “create trouble.” The company that’s controlled the utility for four decades then sold a 20 percent share to Pangilinan’s Philippine Long Distance Telephone Co. with an option to match any offer for its remaining 13.4 percent.

Meralco fell 12 percent to 194 pesos in Manila trading today, while First Philippine declined 3.5 percent to 56 pesos, the most in two months. Metro Pacific fell 4.8 percent to a seven-month low of 3 pesos after agreeing to pay a “premium” to buy the Meralco stake.

Pangilinan, and San Miguel’s Vice Chairman Ramon Ang, who has been at the forefront of the battle for Meralco, didn’t reply to mobile phone messages seeking comment.

‘Strategic Presence’

On Nov. 3, Henry Sy Jr., son of the country’s richest man, offered 300 pesos apiece for all shares held by First Philippine. The stock climbed 13 percent on the news.

The billionaire’s scion made the offer through TriRatna Holdings Corp., where San Miguel’s Ang had been a partner, prompting the Philippine Daily Inquirer and other local media to speculate Sy was helping Ang thwart Pangilinan’s plans.

First Philippine chose Metro Pacific as it is “really interested in selling only half for now because we want to maintain strategic presence,” President Elpidio Ibanez told reporters in Manila. The company will use the loan proceeds to pay debt.

‘Substantial Premium’

Metro Pacific, a toll road and water utility company, has until March 31 to exercise its option to buy the Meralco stake, valued at 14.5 billion pesos based on today’s closing price. Metro Pacific today said it will pay 300 pesos per share if it exercises the call option. First Philippine will be paid in cash, Jay Lopez, a spokesman, said today.

“The market thinks the company is paying a substantial premium for the shares,” said Rico Gomez, who helps manage $1 billion at the Manila-based Rizal Commercial Banking Corp. Metro Pacific “will have to justify paying this much for an asset.”

Structuring the transaction as a loan with a call option instead of a share purchase may allow Pangilinan to skirt a rule that requires buyers who exceed 35 percent to offer to buy out all other shareholders, said Astro del Castillo, managing director at First Grade Holdings Inc., a Manila-based investment advisory.

San Miguel, which bought its 27 percent stake at 90 pesos a share, “is going to make a lot of money,” Banco de Oro’s Fausto said. “It can be a passive investor or sell eventually.”

‘More Stability’

A takeover by Pangilinan will result in “a more stable utility company,” said Fausto, who declined disclose if he or Banco de Oro hold Meralco shares. “The political risk will lessen. First Philippine Holdings will get a lot of cash. They have had debt problems. This cash will give them lots of relief.”

Taking over Meralco may also help Pangilinan’s plans to invest in infrastructure and buy other utilities as mobile-phone growth slows. San Miguel is trying to diversify from food and drinks, buying an option to acquire oil refiner Petron Corp. and bidding for government-owned power plants.

“It’s a good diversification strategy,” said Paul Joseph Garcia, who helps manage $1.4 billion at ING Investment in Manila. “There’s going to be sustainable economic growth. Given the state of development here, there’s a lot of potential in infrastructure and utilities.”

To contact the reporters on this story: Francisco Alcuaz Jr. at falcuaz@bloomberg.net; Cecilia Yap in Manila at cyap19@bloomberg.net.

Last Updated: November 6, 2009 01:26 EST