Baguio Gold stockholders okay PAL buyout, capital increase

Shareholders of Baguio Gold Holdings Corp. approved yesterday the acquisition of flag carrier Philippine Airlines (PAL) and the proposed increase in the listed holding firm’s capital stock to P20 billion from only P400 million.

The capital hike is intended to cover the acquisition of PAL and other investments.

Baguio Gold president Jaime Bautista said the company hopes to complete the acquisition of PAL as soon as possible. "The due diligence is nearing completion and we hope to complete it soon. This is the most opportune time to proceed with the transaction with PAL posting profits for two consecutive years," Bautista said.

Under the proposed transaction, Baguio Gold will acquire six companies jointly holding 81.57-percent stake in its sister firm PAL for P136 million. Both Baguio Gold and PAL are owned by Filipino-Chinese tycoon Lucio Tan.

The six companies are Pol Holdings Inc., Cube Factor Holdings Inc., Ascot Holdings Inc., Sierra Holdings and Equities Inc., Network Holdings & Equities Inc., and Maxell Holdings Corp.

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.

Under the deal, five billion shares will be issued to TrustMark Holdings Inc., a holding company also owned by Tan. These shares would give TrustMark 97.15-percent interest in Baguio Gold.

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.

Upon completion of the transaction, Baguio Gold will be renamed PAL Holdings Inc., Bautista said.

Bautista said the acquisition would no longer need approval of PAL’s creditors since there will be no change of ownership in the country’s flag carrier. "This is a shareholder transaction so there is no effect on PAL. PAL will be controlled by the same group," Bautista said.

The Securities and Exchange Commission earlier said PAL’s purchase by Baguio Gold would need creditors approval for it to be implemented since the flag carrier is under receivership.

Baguio Gold, formerly known as Baguio Gold Mining Co, was originally engaged in mineral exploration but shifted its main business to a holding firm in 1996. It had been on the look-out for possible acquisitions since 1998 but has not made any major investments prior to the PAL deal.

PAL has reduced its debt to just about $1.1 billion since it went under receivership in 1999. 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. Eight years later, he acquired inactive mining firm Baguio Gold. This followed his acquisition of another listed company, Asian Pacific Equity Corp., which he later renamed Tanduay Holdings.