May 13, 2009 / 11:37 AM / 11 years ago

San Miguel ups Meralco stake, power struggle looms with PLDT

MANILA, May 13 (Reuters) - Philippine conglomerate San Miguel Corp (SMC.PS) SMCB.PS said it controls 43 percent of Manila Electric Co (Meralco) (MER.PS), setting the scene for a potentially explosive battle for control of the country’s biggest power distributor at its May 26 annual meeting.

Another group, led by Philippine Long Distance Telephone Co (PLDT) (TEL.PS), has about a 43.5 percent interest in Meralco, including PLDT’s 20 percent stake and 13.4 percent held by the Lopez family, one of the Philippines’ most powerful dynasties.

Meralco has become a hot prospect since the government gave permission last month for it to increase power tariffs by up to 27 percent, its first hike since 2003.

It also has a fibre optic and telephone pole network that would benefit PLDT and potentially San Miguel, which plans to move into the telecoms sector as part of a diversification strategy to fuel future growth.

San Miguel began selling out of its core food and beverage business last year to focus on infrastructure and heavy industry.

President Ramon Ang said earlier on Wednesday San Miguel wants to raise $800 million from selling its overseas beer operations and from a public offering of up to 14 percent of its packaging unit. Proceeds would go towards funding its entry into heavy industry and to pay down debt. [ID:nMAN472145]

Ang said his group, with affiliates, had increased its stake in Meralco from the 27 percent stake it bought last year.

Meralco shares have risen 63 percent so far this year, beating the main index's .PSI 22 percent gain.

But a drawn-out battle for control of Meralco between Ang and PLDT Chairman Manuel Pangilinan would leave the power firm as the loser, warned Jomar Lacson, head of research at Campos, Lanuza and Co.

“Both of them being seasoned veterans in corporate Philippines know that if they continue to disagree over management decisions then they won’t be able to recover their investments in Meralco,” he said.

Last year, Meralco’s annual meeting was delayed by 10 hours after state pension fund GSIS attempted to shake up management in a row over power rates with the Lopez family.

GSIS eventually sold its 27 percent stake to San Miguel and the Lopezes retained operational control of Meralco. Earlier this year, the family cut its stake and partnered PLDT to fight San Miguel.

“The problem with San Miguel is they’re going all over the place. They don’t know what they want to focus their attention on, whether it’s Meralco or Petron,” said Oscar Lopez, chairman of First Philippine Holdings Corp (FPH.PS), which holds the Lopez family’s stake in Meralco.

San Miguel has an option to acquire half of top Philippine oil refiner Petron Corp (PCOR.PS).

Lopez confirmed San Miguel had increased its Meralco stake to 43 percent after “some of its groups bought additional shares”.

PLDT has first priority on the Lopez group’s stake in Meralco, if the family opts to sell. Lopez said there were no plans for now to sell out.

Laura Dy-Liacco, analyst at ATR-Kim Eng Securities, says she expects the tariff increase to almost treble Meralco’s net profit to around 9 billion pesos ($190 million) this year.

San Miguel’s Ang said the tariff hike proved the food and beverage group’s foray into the utility sector was a good decision. “We were being criticised for expanding into areas that we don’t understand, now look who’s talking,” he told reporters. ($1=47.37 pesos) (Editing by Ian Geoghegan)

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