San Miguel Said to Sell Philippine Air Stake

San Miguel Corp. will sell back its holdings in Philippine Airlines Inc. to billionaire Lucio Tan, two years after the nation’s largest company invested in the flag carrier and took management control.

The two companies signed an agreement today, San Miguel President Ramon Ang said in a mobile-phone text message. The deal is valued at $1 billion, according to people familiar with the transaction, who asked not to be identified as the information isn’t public. San Miguel, in 2012, bought an indirect 49 percent stake in Philippine Airlines and an affiliate for $500 million.

The purchase ends speculation about Tan’s interest in aviation and gives him full control of the airline when it’s expanding flights after the U.S. restored the highest air-safety rating on the country in April. The stake sale is also a walk back from a diversification spree for San Miguel, the country’s most acquisitive company since at least 2008, whose core businesses include oil and food.

“You really can’t have two drivers,” Jomar Lacson, head of research at Campos Lanuza & Co. in Manila, said by phone. “Once control returns, Tan must be able to continue to invest in the company the same way Ang has done. It will be a big negative for the airline if the trend reverses.”

Tan’s Plans

Shares of PAL Holdings Inc., the airline’s parent, rose 4.4 percent to 6 pesos at the close in Manila, its highest price since Jan. 23. The news of the stake sale came after the stock market closed for trading. San Miguel gained 0.1 percent to 77.85 pesos. The benchmark Philippine Stock Exchange Index rose 0.7 percent.

Jaime Bautista, former president of Philippine Airlines and Lucio Tan’s consultant, didn’t reply to calls to his mobile phone. Michael Tan, Lucio’s son and president of holding company LT Group Inc., said he’s not involved in the talks. San Miguel spokeswoman Jane Llanes said she can’t comment about the value of the deal.

Tan, the Philippines’ second-richest man, last year said he was considering offers for his 51 percent stake in the carrier, signaling a potential exit from the airline industry after two decades. Ang on Aug. 1 said Tan offered to “buy us out.”

PAL Holdings had a net income of 1.47 billion pesos ($34 million) in the second quarter, reversing a loss of 1.06 billion pesos a year ago.

‘Silver Lining’

The carrier has been revamping its fleet, including last year’s agreement to acquire at least 64 planes from Airbus Group NV. In July, it expanded a code-sharing agreement with Etihad Airways PJSC and announced plans to start flying to New York this year. The airline resumed flights to London late last year 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, allowing Philippine Air to add new routes and fly more often to the U.S. Last year, the European Union lifted a three-year-old flight ban on the flag carrier.

“The silver lining to this is that San Miguel can raise funds, which it can redeploy to investments providing higher returns,” Lacson said.