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San Miguel in Talks to Return Philippine Air Stake to Tan

Aug. 1 (Bloomberg) -- San Miguel Corp. is in talks with billionaire Lucio Tan to sell back its stake in Philippine Airlines Inc., a move that would free up capital for the country’s biggest company and give Tan control of the carrier.

“They’re offering to buy us out. Talks are ongoing,” San Miguel President Ramon Ang said in a mobile-phone message. The company is “not in talks to buy them,” he said.

San Miguel has announced almost $8 billion in acquisitions since 2000 and is prepared to spend as much as $10 billion more to buy assets in Southeast Asia as it moves further from the food-and-beverage industry and into energy and infrastructure. The company purchased its 49 percent stake in the Philippines’ largest airline from Tan two years ago for $500 million.

Returning the stake “will free up more capital for San Miguel’s other businesses,” April Lee-Tan, research head for COL Financial, said by phone. “The airline business is capital-intensive. It will help them preserve some capital.”

Jimmy Bautista, a consultant to Tan on the Philippine Airlines stake, said he was in a meeting and couldn’t take calls.

Shares of PAL Holdings Inc., the carrier’s parent company, climbed 0.9 percent to 5.50 pesos at the close of trading in Manila. San Miguel also gained 0.9 percent to 79.70 pesos, its biggest increase since June 30. The benchmark Philippine Stock Exchange Index rose 0.4 percent.

Fleet Overhaul

Buying back San Miguel’s stake in the carrier would be a change in direction for Tan, who said last year that he was considering offers for his remaining 51 percent stake, signaling his potential exit from the airline industry after two decades.

The Philippine Daily Inquirer reported July 28 that Tan was trying to raise funds to buy back San Miguel’s stake, adding that San Miguel may buy out Tan if he can’t come up with the money. Tan would need about $1 billion to buy back shares and cover advances for aircraft purchases, the newspaper said, citing unnamed people familiar with the business.

In a subsequent filing to the Philippine Stock Exchange, PAL Holdings confirmed talks between San Miguel and the Lucio Tan Group “with respect to their indirect equity stakes,” without going into specifics.

The possible change in Philippine Airlines’ ownership comes as the carrier begins revamping its fleet, including last year’s agreement to acquire at least 64 planes from Airbus Group NV. Last month, it expanded a code-sharing agreement with Etihad Airways PJSC and announced plans to start flying to New York in October. The airline resumed flights to London in November after it stopped flying to Europe in 1998.

The U.S. Federal Aviation Administration restored the Philippines to the agency’s highest air-safety rating in April, six years after the Southeast Asian nation was downgraded. Last year, the European Union lifted a three-year-old flight ban on the flag carrier.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editors responsible for this story: Chua Baizhen at bchua14@bloomberg.net; Frank Longid at flongid@bloomberg.net Brendan Scott, Dave McCombs

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