Acquisition of PAL by Baguio Gold needs creditors’ OK

Baguio Gold Holdings Corp.’s acquisition of Philippine Airlines (PAL) would need the approval of the flag carrier’s creditors in order for it to be implemented, according to a top official of the Securities and Exchange Commission (SEC).

SEC chairman Fe Barin said while the commission is not opposed to the proposed transaction, all actions and decisions of the flag carrier must have the consent of PAL’s creditors since it is under receivership.

Baguio Gold’s board has approved the acquisition of 81.57 percent of PAL for P136 million. The proposed deal covers the purchase of the stakes held by Pol Holdings Inc., Cube Factor Holdings Inc., Ascot Holdings Inc, Sierra Holdings and Equities Inc., Network Holdings & Equities Inc. and Maxell Holdings Corp. in PAL. The six companies and Baguio Gold are all owned by tobacco and beer magnate Lucio Tan.

The payment will be made over a 12-month period. The purchase price took into consideration the current book values of each of the companies, which are all negative.

Baguio Gold will hold a shareholders’ meeting on Sept. 29 to seek approval for the increase in its authorized capital stock to P20 billion from P400 million to accommodate its acquisition of PAL.

To support the increase in its capital, Baguio Gold said it would convert certain debt acquired in connection with the acquisition of indirect interests in PAL into equity.

The sale is expected to result in the backdoor listing of PAL on the local bourse.

Backdoor listing is a technique used by a corporation to get listed on the stock exchange whereby the company acquires and merges with a company already listed on that exchange.

The airline, which agreed to a debt rehabilitation program with creditors in 1999, has cut the size of its debt to about $1.1 billion. It has been adding more flights and upgrading its fleet in view of the highly competitive business environment.

Tan bought into the airline in 1992, when he secretly supported a group led by Antonio "Tonyboy" Cojuangco, then president of Philippine Long Distance Telephone Co. (PLDT) which acquired two-thirds of PAL from the government for $390 million.

Eight years later, Tan acquired inactive mining firm Baguio Gold. This followed Tan’s acquisition of another listed company, Asian Pacific Equity Corp., which he renamed Tanduay Holdings.