SMC-Kirin will be 5th biggest brewer in the world

The planned acquisition by Japan’s Kirin Brewery Co. Ltd. of a 15-percent stake in food and beverage giant San Miguel Corp. (SMC) will result in a partnership that will result in their becoming the fifth largest beer producer in the world.

SMC chairman Eduardo "Danding" Cojuangco Jr. said that aside from this development, the planned Kirin buy-in would also be viewed by foreign investors as a "seal of approval" for the Arroyo administration and its economic policies.

Cojuangco made the remarks in the "Isyu" program on ABS-CBN late Thursday even as he expressed hope the government would not block the deal.

"SMC has no ranking among the world’s brewers. Kirin is now No. 10. But with the buy-in, the combined brewing capacity of San Miguel and Kirin would make us No. 5 in the world," Cojuangco said in Filipino.

Moreover, Cojuangco said the buy-in deal alone is expected to bring into the country one and a half times the amount of foreign investments the country attracted for the entire year.

"But more important than all these, the buy-in will be seen as a seal of approval for the incumbent government, the Arroyo administration," he said.

"It’s important that foreign investors see that (a company like Kirin) believes in the administration’s policies... That would even show that (President Arroyo’s) foreign trips are actually productive," Cojuangco added.

At the same time, he belittled speculations that the deal and its concomitant five-year voting trust agreement would effectively keep him indefinitely at the helm of the country’s ninth largest company.

He explained that he personally votes only 20 percent of the shares, enough for three board seats, while Kirin’s acquisition will give the company only two seats in the 15-member board.

Besides, he said that even if shareholders want him to stay on as chairman indefinitely, he was not certain he would still be interested in the position because "people do get tired, you know."

Cojuangco said that while the acquisition will dilute all shareholders by "0.7 of a percent," the shares controlled by the government have already appreciated by several billion pesos and will retain the same number of seats in the SMC board.

"The shareholders’ agreement does not say that I will vote the Kirin shares. What it actually says is that if there are any big issues before the San Miguel board, we should have an agreement before we vote," he said.

Cojuangco appeared in the television program only hours after President Arroyo reassigned the task of reviewing the Kirin deal from Finance Secretary Jose Isidro Camacho to Trade Secretary Manuel Roxas II.

The President made the reassignment after conflict of interest issues were raised since Camacho had once worked on a similar review of a Kirin buy-in deal when he was still an investment banker.

The SMC board of directors approved on Friday Kirin’s plan to acquire some 443 million unissued "B" shares representing a 15-percent stake in SMC at P62 per share for a total of P27.9 billion ($540 million).

The government had said the Presidential Commission on Good Government (PCGG) would seek to improve some terms, like pre-emptive rights, of the deal.

The government said it wants to review acquisition terms because of fears the deal would dilute shareholdings controlled by the government through the coconut levy funds and the two state pension funds.

The coconut levy funds, formally known as the Coconut Consumers Stabilization Fund (CCSF), were collected from small coconut farmers from 1973 to 1982 during the Marcos regime.

The amount, now estimated at some P130 billion, reached P9 billion when it was last collected in 1982. A portion of the levy funds was allegedly used to acquire majority or sole control of several companies.

According to the PCGG, some of the corporations created or acquired through the levy funds were UCPB, Philippine Coconut Producers Federation Inc., Cocofed Marketing Corp., Cocofed Life Insurance Corp. and United Coconut Oil Mills Inc.

In 1983, oil mills set up by the Coconut Industry Investment Fund (CIIF), which was also created through the levy funds, borrowed from UCPB to set up 14 holding companies.

The 14 holdings companies in turn obtained a direct loan from UCPB, raising some P1.656 billion to buy some 33.1 million shares in SMC.

These shares are the so-called CIIF shares amounting to some 31 percent which are controlled by the government.

The government had asked the Supreme Court to force some lawyers to identify the real owners of the 14 holding companies but the Supreme Court ruled that the lawyers cannot be forced to identify the real owners because it is privileged information between lawyer and client.

The government, through the Social Security System (SSS) and the Government Service Insurance System (GSIS), also controls another block of more than 15 percent for a total of more than 46 percent.

The biggest individual stockholder is current SMC chairman Cojuangco who owns a 20-percent block but the government has also contested those shares.

The Palace said that although the ownership of that 20 percent block is still under litigation, the fact that Cojuangco is the biggest individual stockholder of SMC is enough reason for him to remain as chairman.

The litigation over the funds, stalled for 15 years by legal questions on its private or public nature, was given a boost last Friday by no less than the Supreme Court which ruled that the funds were "prima facie public in nature."

While the SC ruling stemmed from the government’s right to vote the sequestered shares in UCPB, the decision on the nature of the funds is expected to impact on all other cases stemming from the fund.

The SC also ordered the Sandiganbayan to resolve the suits with finality within six months, or by June next year.