Billionaire Tan May Sell His Stake in Philippine Airlines

Philippine billionaire Lucio Tan has been approached by a group of investors to sell his control of PAL Holdings Inc. (PAL) and Philippine Airlines Inc. as he prepares to exit the aviation business after two decades.

Tan is “seriously looking into the proposal,” PAL said in a filing today. He owns 51 percent of Philippine Airlines through companies including PAL, which may be valued at $520 million based on figures derived from a sale in April last year.

The billionaire would be leaving an industry plagued by U.S. and European bans that have prevented Philippine Airlines from either flying to or expanding routes in those regions, and led it to post losses in seven of the past eight quarters. The announcement follows comments yesterday by San Miguel Corp. (SMC), owner of a 49 percent stake in the airline, that it isn’t buying Tan’s holding.

San Miguel should have the right of first refusal, and it doesn’t seem to be worried about matching an offer from an outside buyer,” Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila, said by telephone today. “The logical investors would be a group from San Miguel (SMC) itself,” with possible candidates being Ramon Ang, president of the Philippines’ biggest company, Chairman Eduardo Cojuangco Jr. or Roberto Ongpin, a director, he said.

Photographer: Enrique Soriano/Bloomberg

Lucio Tan, chairman of LT Group Inc., is seen in this 2007 photo. Close

Lucio Tan, chairman of LT Group Inc., is seen in this 2007 photo.

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Photographer: Enrique Soriano/Bloomberg

Lucio Tan, chairman of LT Group Inc., is seen in this 2007 photo.

Potential Investors

LT Group Inc. (LTG), Tan’s holding company, declined 5.3 percent to 22.50 pesos at the close of trading in Manila, while San Miguel fell 2.1 percent to 95 pesos. Trading in PAL, which owns 85 percent of Philippine Airlines, has been halted since the start of the year after it failed to meet a 10 percent public-float rule.

GRAPHIC: Bloomberg Visual Data

GRAPHIC: Bloomberg Visual Data

There are two potential investors and their details aren’t yet known, Ang, who is also PAL’s president, told reporters after San Miguel’s annual shareholder meeting in Manila.

“If the buyer is friendly and a good strategic partner, that’s enough” and the investors are probably from the airline industry, Ang said. San Miguel “can think of buying” the stake owned by Tan if they don’t see any benefit to the airline from the potential investors, Ang said.

Ongpin didn’t immediately respond to mobile-phone messages seeking comment.

Tan, 78, gained control of Philippine Airlines in 1992 when it was privatized. He sold a 49 percent stake in the carrier last year to San Miguel (SMC), the nation’s biggest company by revenue, for $500 million.

That price implies a value of about $520 million for his 51 percent holding, without accounting for costs and benefits related to the airline’s business reorganization, Lacson said.

Photographer: Lam Yik Fei/Bloomberg

A Philippine Airlines Inc. airplane prepares to land at Chek Lap Kok airport in Hong Kong. Close

A Philippine Airlines Inc. airplane prepares to land at Chek Lap Kok airport in Hong Kong.

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Photographer: Lam Yik Fei/Bloomberg

A Philippine Airlines Inc. airplane prepares to land at Chek Lap Kok airport in Hong Kong.

EU Blacklist

The Philippines has been on an E.U. aviation blacklist for failing to meet safety standards, meaning its airlines can’t fly into the region. The nation also has a Category 2 rating from the Federal Aviation Administration that prevents its carriers from adding routes in the U.S.

The two aviation authorities may upgrade the Philippines after the International Civil Aviation Organization reviewed the country’s air-safety improvements, President Benigno Aquino said March 6.

PAL, Philippine Airlines’ parent, widened its net loss to 2.22 billion pesos ($51.6 million) in the third quarter ended December from a loss of 1.23 billion pesos a year earlier, according to data compiled by Bloomberg.

‘Overall Vision’

PAL will stay public and investment in the carrier is an “important piece in our overall vision” for San Miguel, Cojuangco told stockholders today.

Philippine Airlines is expanding its fleet, with 22 planes to arrive this year and 25 more in 2014, Ang said. The carrier projects revenue will increase 25 percent as it adds planes this year, Ang said April 26. The carrier expects to fly to Europe this year when the E.U. lifts its ban, he said.

The carrier will invest $10 million for a 49 percent interest in Cambodia Airlines Co. and plans to complete the transaction by July 15, it said in a filing on May 27. The venture will probably boost its revenue by as much as $400 million, Ang said May 9.

PAL shareholders on March 15 approved the sale of as many as 2.42 billion shares and an increase in the company’s authorized capital by 30 percent to 30 billion pesos. It may sell the shares this month, Ang said June 5.

Tan also owns Fortune Tobacco Corp., a cigarette maker, and Asia Brewery Inc., the country’s second-biggest beermaker. The airline stake sale may be part of estate planning by the billionaire, according to Lacson.

To contact the reporter on this story: Norman P. Aquino in Manila at naquino1@bloomberg.net

To contact the editor responsible for this story: Clarissa Batino at cbatino@bloomberg.net

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