Battling Over An Ocean Of Suds In The Philippines
Beer and politics may seem a strange brew, but it's familiar enough in the Philippines. San Miguel Corp. has loomed large in Manila for much of its 107-year history. The country's fifth-largest company and a giant among Asian food-and-beverage producers, San Miguel accounts for 4% of national output and 5% of tax receipts. Small wonder that San Mig, as the company and its beer are known, was targeted in the 1980s, when Manila went after the assets of Ferdinand Marcos and his cronies. Since 1986, the government has sequestered 47% of San Miguel stock--a piece currently worth $1.2 billion.
Signaling the bottom-fishing that may spread across Asia, Hong Kong-based conglomerate First Pacific Co. now wants to buy the sequestered San Mig stock. And, eager to end a 12-year ownership tangle, Manila wants to talk. But there are sticking points aplenty. Andres Soriano III, San Miguel's chairman and chief executive, wants to block First Pacific. Nor has Manila agreed with Eduardo Cojuangco, from whom the shares were seized, as to how the proceeds should be divided. "This deal will drag along," says Oliver Calma of Sun Hung Kai Securities (Phils.) Inc. "I expect a lot of twists and turns in coming months."
CRUX. Just how many months is crucial to President Fidel V. Ramos, whose term ends in May. With tax revenues falling because of the economic crisis, a San Mig sale would let Ramos leave office with Manila looking fiscally healthy and his reputation for shrewd economic management intact. Analysts expect the government to get the larger share of what First Pacific pays for the San Mig stock, which was taken from Cojuangco companies and funds he controlled. They also expect First Pacific to pay a premium for control of San Miguel.
Manuel V. Pangilinan, First Pacific's managing director, is an eager buyer. The 51-year-old Filipino has built the company into one of the region's largest multinationals, with interests in telecommunications, property, banking, and consumer goods. And while First Pacific shares have taken their lumps recently, Pangilinan makes no secret of his unshaken faith in Asia. In mid-January, First Pacific said it would sell its stake in Hagemeyer, a Dutch trading company, for an asking price of $1.55 billion. That move, combined with the advance on San Miguel--Pangilinan bought a 2% position last year--appears to signal a new strategic commitment. "First Pacific sees opportunities," says Tien Xuan Doe of Deutsche Morgan Grenfell Securities Philippines Inc. "Why not get some underutilized and undervalued assets?"
Pangilinan seems convinced that San Mig needs tighter management. "There may be some things in the company that can be more productive," he says demurely. He could be right: Year-to-year profits plunged 93% in third-quarter 1997. For the year, analysts expect San Mig to report earnings of $92 million, a 38% drop, on revenues of $1.5 billion. While the damage reflects the economic crisis, some analysts say Soriano's management has made matters worse. Over the past decade, San Mig's volume share of the domestic beer market has declined from more than 90% to 83%. Concerned about the share price, some government officials have criticized money-losing forays into Vietnam, Indonesia, and China.
SCION. Soriano, whose family holds less than 2% of San Mig stock and whose grandfather and father ran the company for decades, took charge when Manila stepped in. He may now emerge as the big loser. But, while he declined to be interviewed for this article, he does not appear ready to give up without a fight. Although the Sorianos lack the resources of some other Filipino clans, Andres is rumored to be seeking backers in the U.S. for a rival bid. But a bitter feud between Soriano and Cojuangco could prevent Soriano from acquiring the sequestered stake on any terms.
The most effective route for the Sorianos, some experts say, may lead through a lawyer's office. "They could try and stick it in the courts for ages," says Tien Xuan Doe at Deutsche Morgan Grenfell. Indeed, the Supreme Court could strike down an agreement even if everyone else backs it. That may seem far-fetched, but the court did just that when the famed Manila Hotel was about to be sold to a Malaysian-led consortium last year. San Mig's fate may well emerge as a hot political issue in coming presidential campaigns. While its tangled tale may soon draw to a close, no one is yet ordering celebratory pints.