Challenge likely on Kirin-San Miguel deal


SMC chairman Eduardo Cojuangco and Kirin CEO Koichiro Aramaki announce the deal in Manila last Friday

By Rufi Vigilar

MANILA, Philippines (CNN) -- A Philippine government agency investigating ill-gotten wealth is expected to challenge the sale of a 15 percent stake in the food and beverage group San Miguel Corporation to Japan's Kirin Brewery.

Kirin, Japan's biggest brewery, said Friday it would pay about $540 million for the stake, representing a premium of about 12.6 percent on San Miguel's B-share closing price that day.

San Miguel Corporation executive chairman Eduardo Cojuangco and Kirin president Koichiro Aramaki announced the deal at a Manila news conference, just before the Supreme Court ruled the Philippines government was the owner of a contested 27 percent stake in San Miguel.

The government and Cojuangco have been contesting ownership of the stake, which was bought in the 1970s using funds from a levy on coconut farmers. The stake is now held by the Coconut Industry Investment Fund.

The Supreme Court's ruling gave the Presidential Commission on Good Government (PCGG) the right to vote on the sequestered shares. It said the funds were "prima facie" public in nature.

Boosts PCGG claim

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The legal decision boosts the contention of the PCGG that San Miguel shares could be sold at a higher premium than that obtained by Cojuangco in the Kirin deal.

The government holds 43.9 percent of San Miguel shares, including those held by two government pension funds and the Coconut Industry Investment Fund, the PCGG said.

The agency said that if the government shares were sold as a block with the 15-percent stake offered to Kirin, the government could fetch a better sale price because it would give the buyer majority control of San Miguel.

President Gloria Macapagal Arroyo had called the sale to Kirin a "shot in the arm" for the country's investment climate. Market analysts also said it would boost shareholder value.

But PCGG chief Haydee Yorac attacked the "lack of transparency" of the sale which would dilute government-held shares in San Miguel.

Cojuangco could use liquidity from the sale "to buy the CIIF shares later" and effectively take a firmer hold on San Miguel, PCGG commissioner Victoria Avena said.

Control of the board

The shareholders' agreement between Cojuangco and Kirin includes a buy-out clause that gives Cojuangco first right to buy shares of the Japanese firm should it sell out after five years.

Cojuangco controls the 15-member San Miguel board. Kirin will acquire two board seats after the sale goes through.

Even if Cojuangco's 20-percent stake in San Miguel is diluted by the sale, he will still control three board seats.

The Arroyo administration failed to meet a January deadline to replace five nominees on the San Miguel board who are holdovers from the administration of deposed president Joseph Estrada.

Cojuangco ran as Estrada's vice president in 1992 and regained control of San Miguel during the previous administration.

The shareholders' agreement between San Miguel and Kirin still has to be ratified by shareholders in a special session on February 27 next year.

The PCGG said Friday it would name its nominees by January 20.

Cojuangco says the sale to Kirin will upgrade and expand San Miguel's operations. The sale would involve more than 442 million unissued shares and those repurchased by San Miguel in the past two years.

Kirin's stake in San Miguel would boost its position in the Southeast Asian beer market, amid dipping sales in Japan.

Warning of social unrest

But Coconut Industry Reform Movement executive director Joey Faustino warned of "social unrest among coconut farmers" and sympathetic groups that could further discourage investors in the Philippines, if the sale to Kirin goes through.

Kirin shares closed 2.3 percent higher Monday after investment ratings upgrades from Morgan Stanley and Nomura Securities. The shares rose more than two percent on Friday after the deal was announced.

However, some analysts worry that disputes over San Miguel's shares and board makeup could drag on in the courts.