San Miguel inks power-sharing deal with Manila


Cojuangco (c) will keep control of San Miguel after his deal with the government

Amabelle Layug || CNN Hong Kong

MANILA, Philippines -- The Philippines has signed an agreement with San Miguel Corp. that paves the way for Kirin Brewery Co.'s $540 million stake in the food and beverage giant.

The power-sharing deal allows San Miguel chairman Eduardo Cojuangco to maintain control of the company, while giving the government the representation it wants on San Miguel's board.

The pact was signed on Saturday by Cojuangco and Haydee Yorac, chairwoman of the Presidential Commission on Good Government (PCGG).

The formal deal comes less than week before the SMC special stockholders' meeting where Japanese beer maker Kirin's buyin to San Miguel will be up for ratification.

It will remain in effect until February 21, 2004 or until final rulings on coconut levy fund cases are resolved in court.

Government to name five directors

Under the agreement, San Miguel will allow the government to name five directors to represent the 27 percent interest in San Miguel of the Coconut Industry Investment Fund Holdings.

They would replace the five nominees chosen under ousted president Joseph Estrada. They have refused to vacate their posts, even after their patron was toppled from power.

Aside from board representation, the government nominees will also serve on various San Miguel committees, including the executive, audit, compensation and nomination committees.

In return, the government nominees pledged to vote in favor of San Miguel's deal to sell 15 percent of itself to Kirin, Japan's second-biggest brewer, at the stockholders meeting on Tuesday, and to retain Cojuangco as chairman of San Miguel.

The deal would raise the government's representation in the 15-member board to seven.

Contested shares

The government currently has voting rights on just over 40 percent of San Miguel's shares, including the 27 percent block that PCGG represents.

Two state-owned funds -- the Social Security System and the Government Service Insurance System -- hold shares equivalent to around 13.5 percent.

PCGG Commissioner Ruben Carranza dismissed speculation that the deal was a compromise. He vowed his agency would continue to pursue its claims in three cases relating to the coconut levy funds through the courts.

The government's stake in San Miguel involves shares that were sequestered by the PCGG in 1987, on suspicion they were purchased with funds illegally collected from coconut farmers by former President Ferdinand Marcos.

Ownership of these shares is being contested in the anti-graft court. A further 20 percent block of sequestered stock is also still under litigation, but Cojuangco controls those voting rights.

The agreement also provides for the government to maintain its presence in San Miguel's existing subsidiaries, as well as board representation in San Mig's recent acquisitions: Pure Foods Corp.; Cosmos Bottling Corp; and Coca-Cola Bottlers Philippines Inc.

On Friday, San Miguel restricted A shares finished 1.3 percent lower at 48 pesos, while the B shares dropped 4.55 percent at 63 pesos.

The main composite index closed down 47.06 points or 3.26 percent at 1,396.38. The Philippine market is closed on Monday for the People Power anniversary.