IF the public who trade on stocks listed on the Philippine Stock Exchange (PSE) were to search for the $400-million injection by San Miguel Corp. (SMC) into a holding company owned by businessman Lucio Tan, they have to sift through the postings of PAL Holdings Inc. on the PSE website.
Although I am not a stockholder of any of the Tan-owned companies or of PAL Holdings Inc., which is listed, I pre-empted the public and did my own suggestion. Luckily, I found one particular filing that initially showed where SMC’s $400-million infusion went. As the Tan-owned listed company said in a disclosure sometime last year, Trustmark Holdings Inc. got the money and converted it into P17 billion at the exchange rate of P42.50 to a US dollar.
But that was not the end of the $400-million story.
The particular posting showed Trustmark subscribed to additional 17 billion shares in PAL Holdings at P1 per share, which was the par value of PAL Holdings’ capital stock. The additional infusion effectively increased Trustmark’s ownership in PAL Holdings to 22.297 billion shares, or 89.776 percent of the outstanding equity. Since SMC owned 49 percent of Trustmark, its indirect holdings in PAL Holdings would translate to 10.926 billion shares, or 43.99 percent.
Because SMC wanted the airline, PAL Holdings invested the same P17 billion in additional 85 billion shares in Philippine Airlines Inc. at a par value of P0.20 per share. With the increase of its ownership in its airline unit, PAL Holdings raised its control to 88.823 billion shares, or 98.02 percent, from 8.823 billion shares, or 81.57 percent. In money terms, 88.823 billion shares mean P17.765 billion at a par value of P0.20 per share and 8.823 billion shares translate to P7.058 billion at P0.80 par value or an increase of P10.707 billion.
But the computation of equity participation and control is not based on par value but on the number of shares. Had SMC directly invested its $400 million or P17 billion in PAL, the airline, its acquisition of 85 billion shares would have made it the parent of a new subsidiary in the airline PAL. Its 85 billion shares would have been equivalent to 93.594 percent, while Mr. Tan and his group would have ended up with a minority stake of 3.823 billion shares, or 4.21 percent.
Well, at least Mr. Tan would have been slightly ahead of “others” whose holdings totaling 1.994 billion shares in PAL the airline have been diluted to 1.98 percent from 9.43 percent.
But the breakup between SMC and Tan-owned Trustmark had happened and the public, who had factored the short-lived investment into their decision, had no other recourse but to review their market options.
That SMC agreed to put in that much money in Trustmark would remain a puzzle among investors who would have wanted to ask but could not: Whatever happened to what appeared to be a good partnership between two industry giants?
SMC, which used its unit San Miguel Equity Investments Inc. in its joint venture with Mr. Tan, had wanted a part of the airline. But it did not put its money directly in it or in PAL Holdings, which owns the airline. Had it chosen the first option, it could have become a direct stockholder of the airline. But had it opted for the latter—PAL Holdings—it could have been an indirect owner of PAL, the airline company. This would mean there would only be a single layer of ownership separating SMC from the airline.
Because SMC failed to get into either PAL Holdings or in the airline unit, its money ended up with Trustmark, which, like PAL Holdings and PAL the airline, also belongs to the group of companies owned by Mr. Tan. This means SMC’s money passed through two other companies before it reached the airline company.
It is up to the public who trade on listed shares of SMC and PAL Holdings, to analyze the events that led to the sale by SMC of its holdings in Trustmark back to Mr. Tan. As investors who are not privy to the goings-on inside the boardrooms of the two companies, the public could only guess the cause of the breakup. What went wrong?
In the beginning, the deal between SMC and Mr. Tan was going on smoothly with the public who read the news anticipating the entry of SMC as controlling stockholder of the airline. Control here means ownership of at least 51 percent. This did not happen. It would even be safe to say this was not bound to happen from the very beginning even as news started to appear on the business pages detailing the SMC-Tan negotiations.
There is no doubt money flowed from SMC to Trustmark to PAL Holdings, and finally to PAL the airline, as shown in the filings posted on the PSE website. Yet, two questions remain unanswered: How about the ownership? Why was SMC’s stake in the Tan group limited to direct holdings in Trustmark, which is not even listed?