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San Miguel chief strikes deal with the government

Eduardo Cojuangco Jr., the beer magnate, appears to have once again successfully outmaneuvered government efforts to topple him as chairman of San Miguel, the Philippines' most prominent company.

The government reached a deal with Cojuangco this weekend pledging to leave him in charge of the beer, food and drinks conglomerate for two years. In return, the government would gain representation in crucial management committees and on the boards of 13 San Miguel subsidiaries, including a bottling venture with Coca-Cola.

The government, which owns about 44 percent of the company's stock, also agreed not to block San Miguel's 27.9 billion peso (US$544 million) sale of a 15 percent stake to Kirin Brewery of Japan. Shareholders are to vote on the deal Wednesday.

It was through the deal, reached in December, that Cojuangco appears to have stymied the one-year administration of President Gloria Macapagal Arroyo. The day the Kirin deal was announced, the Philippine Supreme Court decided to give the administration the right to replace five pro-Cojuangco directors on San Miguel's board with its own choices. But with the Kirin investment, Cojuangco had won something even better: the investment community's support for his management.

Rather than blocking a big investment and risk squelching a nascent revival in foreign investment here, the government has had to compromise in its efforts to dismantle the economic power still held by the friends and family of former President Ferdinand Marcos. Like Indonesia, where officials are struggling to redistribute corporate empires built under former President Suharto, the government here is finding that former cronies are not only rich, powerful and tenacious, but may often possess indispensable expertise.

"The economy is still hurting and you need these people for it to recover," said Bradford Ti, an analyst at Salomon Smith Barney in Manila.

The dispute centers on control of San Miguel shares that Cojuangco bought using proceeds from a tax imposed in the 1970s by Marcos on coconuts, a major cash crop. Part of the coconut tax revenue found its way into a bank controlled by Cojuangco, who used the money to take over San Miguel. When in 1986 Cojuangco fled the country with Marcos, the new government put the stock into escrow and sued for ownership.

That case is still languishing in court. In 1998, Cojuangco won the right to represent a portion of the sequestered holdings on San Miguel's board. Appointees of another friend, President Joseph Estrada, represented the rest. Cojuangco resumed control of San Miguel.

Arroyo tried and failed to regain control of the shares and oust Cojuangco after taking power early last year. Then in December, the Supreme Court gave the government control of the bank through which Cojuangco bought the San Miguel stake, the United Coconut Planters Bank.

Though poised for victory, the government faced a challenge: Investors have grown to like Cojuangco, especially the way he expanded San Miguel into an earnings powerhouse. With the Kirin deal, Cojuangco had his trump card.

But Arroyo may have one of her own. The government's deal with Cojuangco is null and void if the courts rule on who owns the disputed shares. The court has reportedly ordered that a decision be made within six months.
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