You may soon drink San Mig Light on PAL Flights

San Miguel is set to acquire an indirect stake in flag carrier PAL by buying 49 percent of its parent, PAL Holdings, company president Ramon Ang said on Tuesday.

Sources with knowledge of the deal, which has been expected in some form for a few months and would be worth around P21.7 billion ($508 million) based on Monday’s closing price, said an announcement may come after a meeting on Tuesday.

One source said 49 percent ownership of PAL Holdings would be equivalent to a stake of around 40 percent in the airline, the oldest in Asia but which has been hit by high fuel costs and tough competition from budget carriers.

San Miguel has been expanding into capital-intensive sectors such as infrastructure, power, mining, and telecoms in the last four years as it seeks faster profit growth after dominating the local food and drinks sector for decades.

Shares of PAL Holdings jumped as much as nearly 5 percent to a fresh record high of P8.58 in early trade on Tuesday following reports the transaction was close to being finalized. San Miguel was up 0.4 percent.

Closely-held PAL Holdings has climbed more than 22 percent this year, outpacing a 17 percent gain in the main index, while San Miguel has lost 2.65 percent.

San Miguel had previously offered to pay $500 million for a stake of more than 40 percent in PAL, sources had said, adding the company completed its due diligence on the carrier in February.

Tobacco tycoon Lucio Tan owns 85 percent of the airline via his wholly owned firm, Trust Mark Holdings Corp. The rest is owned by employees, other Tan-held companies and the government.

Sources earlier said the business group of Manuel Pangilinan, chairman of the Philippines’ largest listed firm, PLDT, and chief executive of the telco’s parent, Hong Kong’s First Pacific Co Ltd, had made a counteroffer to buy into PAL.

But the Tan group had signed an agreement with San Miguel in December in which it agreed to talk exclusively to the owner of the country’s oldest brewery.

PAL has suffered from labor problems, tough competition from budget airlines and high fuel prices for years, dimming prospects for the airline which posted a net loss of $33.5 million in the three months ending Dec. 31 compared to a net profit of $15.1 million a year earlier.

PAL briefly shut in 1998 due to the weight of its debt and labor problems, but reopened after creditors agreed on a restructuring plan.

It still carries around $900 million in debt, but has significantly reduced the load from more than $2 billion at the height of its financial and labor problems.