January 7, 2002
The government says Cojuangco's 47% stake is an ill-gotten prize from the Marcos era.
By Eric Ellis
It's shaping up as another "Thrilla in Manila." In one corner there's Haydee Yorac, a Yale-trained lawyer tapped by President Gloria Macapagal Arroyo in July to be the Philippines' chief crony-buster. In the other there's Eduardo Cojuangco Jr., one of the country's richest men. The prize? Beverage behemoth San Miguel, the largest company in the Philippines.
San Miguel has been brawled over since deposed dictator--and Cojuangco buddy--Ferdinand Marcos fled the country in 1986. In the latest round, the new Arroyo government is attacking Cojuangco's 47% stake in San Miguel, claiming it is an ill-gotten prize from the Marcos era. Cojuangco has jabbed back, arranging in mid-December to sell 15% of the company to Japanese brewing giant Kirin for $540 million, the largest foreign investment in the Philippines in a decade. Yorac counterpunched by dangling Cojuangco's disputed 47% block, plus another 20% in uncontested shares owned by government pension funds, in front of buyers. Kirin is keeping silent about Yorac's offer but has to be intrigued. Cojuangco's proposal goes before shareholders in February.
Few companies dominate their country's economy the way the 111-year-old San Miguel does the Philippines'. With 90% of the domestic beer and soft-drink market--there's no antitrust law in Manila--the company accounts for 4% of GDP, pays 5% of national taxes, and employs about 15,000 Filipinos. In the first nine months of 2001, it earned $136 million on $1.8 billion in sales.
"San Mig's numbers look impressive," says Anton Periquet, managing director of Regis Securities, a Deutsche Bank affiliate. "But it's not a great return when you consider the revenues and market dominance." Cojuangco's supporters agree, saying that's because the company has been a political issue since Manila confiscated the Cojuangco-controlled shares in 1986.
Cojuangco says he acquired 20% of San Miguel on the open market before Marcos fled. Yorac says Cojuangco laid claim to the stock in the confusion surrounding the collapse of the Marcos regime. (The share certificates were found in the palace bedroom the night of the revolution.) Cojuangco claims the other 27% was originally purchased through the United Coconut Planters Bank, which he controlled via his grip over the nation's copra cartel. Presidents Cory Aquino--an estranged cousin of Cojuangco's--and Fidel Ramos kept Cojuangco away from San Miguel for 12 years, but he reemerged as CEO and chairman in 1998 after another friend, Joseph Estrada, was elected president.
Cojuangco quickly closed down the unprofitable offshore operations started by ex-CEO Andres Soriano III, whose Spanish ancestors founded San Miguel, and slashed headcount and costs. Profits have doubled on Cojuangco's watch, and a $2 billion debt has been transformed into a $1 billion surplus.
Nevertheless, investors have been unenthusiastic. Dogged by governance worries, San Miguel shares have flatlined in the $1 to $1.80 range for the past eight years. Once a portfolio must for foreign institutions, the stock is now "caveat emptor," Periquet says. "The market has a trust issue with the present management."
So does Yorac, who has vowed a renewed legal campaign to recover the estimated $20 billion allegedly pillaged during the Marcos era. But such promises have been made for more than 15 years now, and less than $3 billion has been collected. Filipino courts are riddled with pliable judges. And the agency Yorac chairs, the Presidential Commission for Good Government (PCGG), is starved of funds, a sharp contrast to Cojuangco's sleek machine. "The PCGG has been disorganized," she concedes.
San Miguel is a critical test for President Arroyo: She wants a Philippines that's open to foreign investment without the stain of its corrupt past. Periquet reckons the momentum is with Cojuangco but doubts there will be a neat solution anytime soon. "Eduardo should never be underestimated," he says of a man who once had 1,000 Israeli-trained commandos in his private army. "Haydee Yorac says she has right on her side, but that's never been that much of an issue here."