The Fight Over San Miguel Shares
|May 10, 2011|
After more than three decades, controversy remains over the ownership of a huge block of shares in San Miguel Corporation, one of the Philippines' biggest companies. Critics say the shares were one of the biggest rip-offs of public money during the entire 21-year period that Ferdinand Marcos ruled the Philippines, ending in 1986.
Although the Philippine Supreme Court ruled on April 12 that Eduardo "Danding" Cojuangco Jr., a businessman and member of one of the country's most prominent families as well as a one-time Marcos crony, is the legitimate owner of the contested 20 percent of the outstanding San Miguel capital stock, the case is hardly over. Unlike most supreme courts, in which rulings are final, the Philippines high tribunal has a penchant for reversing itself. The latest ruling could create a political backlash that the court could not ignore and force it to reverse itself once again.
The latest flip-flop has raised considerable controversy because it came amid reports in Manila business circles that Cojuangco has been negotiating for the sale of the San Miguel block of shares since last year. The buyer is rumored to be Robert “Bobby” Ongpin Jr, also a onetime Marcos crony and a businessman considered to be close to, if not an outright front for, former Preisdent Gloria Macapagal Arroyo and her husband Miguel..The April 12 motion underscored the fact that that the Supreme Court, most of whose members were appointed by Arroyo, has itself in several rulings in the past declared that the coconut levy funds are undisputedly public in character.
The April ruling, which the justices principally anchored on the alleged failure of the government to present evidence to prove its case, has been assailed by lawyers for its "flawed logic and blind reasoning" and may well be up for another reversal, especially if political pressure mounts.
Lawyers for the country's coconut farmers, who claim the shares were paid for with their money, filed a motion for reconsideration last Monday asking the court to "reverse and set aside its decision… and that judgment be rendered anew ordering the reconveyance of the subject San Miguel Corporation shares in favor of the government and declaring the ownership thereof to belong to the government in trust for all the coconut farmers."
Cojuangco is a first cousin of late Corazon "Cory" Cojuangco, who married Benigno S. "Ninoy" Aquino. Cory, the mother of the current president of the Philippines, allowed Cojuangco to come back to the country in 1989 after he and other cronies fled the country when Marcos fell. Despite the stain on his name, he managed to put his business empire back together, including assuming control of the San Miguel shares.
The government and millions of coconut farmers contend that Cojuangco acquired the San Miguel shares using funds generated from a levy imposed by Marcos during martial law on farmers selling their coconut produce. Therefore, they argue, the shares belonged to them. San Miguel has since grown into a behemoth, spreading beyond beer to diversify into telecommunications, power generation and other businesses.
Muddling the issues
The high court's ruling has managed only to muddle the issues more. The court said that "the government has failed to establish by preponderance of evidence that [Cojuangco's] San Miguel shares had been illegally acquired with coconut levy funds." It also contended that "Cojuangco is not a subordinate or close associate of the Marcoses."
Seven of the 15 justices concurred with the ruling while four dissented. Four other justices abstained due to various reasons.
The court's arguments however have been assailed by coconut farmers and their allies as "unjust, erroneous, pro-Cojuangco and anti-poor."
"Contrary to the gravely erroneous ruling of the honorable court, the [government] adequately showed that the source of the funds used to purchase the subject San Miguel Corporation shares was public funds," read the motion for reconsideration filed by the farmers' lawyers last May 2.
It reminded the court of its 2004 decision that declared that the money used to acquire the San Miguel shares "form part the coconut levy funds, and thus belong to the government in trust for the ultimate beneficiaries thereof, which are all the coconut farmers."
A dissenting opinion on the decision also pointed out that "The argument that Cojuangco was not a subordinate or close associate of the Marcoses is the biggest joke to hit the country."
"The intimate relationship between Cojuangco and Marcos equates or exceeds that of a family member or cabinet member, since not all of Marcos's relatives or high government ministers went with him in exile on that fateful date," said Supreme Court Justice Conchita Carpio-Morales.
The coconut levy was collected from copra sales. It was initially intended to be a subsidy for the coco industry but its purpose was later expanded to include investing in related industries. After nine years of collection, the coco levy fund ballooned to P9.7 billion (US$467.6 million in 1986 US dollars).
The fund was used to invest in a bank named the United Coconut Planters Bank (UCPB), several coconut oil mills, an international trading company called Unicom, an oleochemical plant, and an insurance company, the United Coconut Planters Life Assurance. The San Miguel Corporation shares comprised the coco levy fund's biggest and most profitable investment.
The acquisition of the San Miguel shares by Cojuangco was in itself laden with controversy. It came about after businessman Enrique Zobel asked Cojuancgo in 1983 to buy out his 16-percent interest in the company. At that time Zobel had quarreled with his cousin, Andres Soriano, Jr. whose group owned 41 percent of San Miguel and controlled its management.
Cojuangco however, allegedly on the behest of Marcos, wanted to wrest control of the company management and thus offered to buy the shares owned by the Soriano group. The negotiation was shrouded in utmost secrecy, with the buyers' identity and the sources of funds for the purchase lost in a maze of corporate structures. That facilitated the transfer of the stocks, as well as the funds, from one entity to another. In fact, when the media uncovered the buyout a few months after it was consummated on December 15, 1983, Danding Cojuangco tried hard to hide from the public the key institutions involved in the sale.
He was quoted in newspapers then as saying that, "no money from the UCPB, Unicom, United Coconut Planters Life Assurance or any corporation in which the coconut farmers have a share was used in the [SMC] transaction."
It was only after Marcos was ousted that the details of the San Miguel transaction were fully unveiled. Documents recovered from Malacañang Palace and the United Coconut Planters Bank (UCPB) indicated that Marcos himself was very much involved in the transaction. In fact, he was said to be "the real man" behind the buyout.
The documents also revealed that the money to buy both the Soriano and the Zobel shares, totaling more than P2 billion, all came from UCPB.
Zobel's shares were bought at P22 per share—the prevailing market price then— or a total of P374 million for the whole bloc of shares. The Soriano group agreed only to sell 33.1 million of their shares at P50 per share—more than double the prevailing market price then—for a total of P1.656 billion. The bloc made up about 31 percent of the total.
The remaining 10 million-plus shares, comprising 10 percent of the 105.6 million shares issued and outstanding at the time, were retained by the Soriano family. Thus, together with the 16 percent share bought from Zobel, Danding Cojuangco's group controlled 47 percent of San Miguel.
The documents further revealed that part of the deal was for San Miguel to invest P500 million in UCPB preferred shares and P1.15 billion in time deposits and other placements, or a total of P1.650 billion. This money was in turn loaned by UCPB to 14 CIIF holding companies to acquire the 31 percent bloc from the Soriano group. The 14 CIIF holding companies were created solely for the purpose of acquiring the said San Miguel shares.
Only the P374 million needed to acquire Zobel's 16 percent (which would later increase to 20 percent) was taken directly from the UCPB. And this amount, Cojuangco would insist was what he took out as a personal loan from UCPB.
In their motion for reconsideration, the coconut farmers argued that if Cojuangco indeed took out a personal loan from UCPB to purchase the San Miguel shares then he violated his fiduciary duty as president and director of the bank and thus the shares should revert back to the government.
"Considering that in 1983, UCPB and the Oil Mills had sufficient funds to purchase the 20 percent San Miguel shares, it should have been UCPB and the Oil Mills who should have purchased the 20 percent San Miguel shares, instead of respondent Cojuangco using said funds to buy the San Miguel shares for his own personal benefit. To use a cliché, this is blatant illegal use of 'other people's money.'"
As to the court's allegation that there is no evidence that Cojuangco was a director of UCPB or the oil companies in 1983 when the San Miguel shares were acquired, the motion reminded the court of its ruling dated August 23, 2001 indentifying Cojuangco at that time as a member of the board of directors of UCPB and was in fact, its president.
The Supreme Court has wanted this ruling "to finally resolve the issue and terminate the uncertainty that has plagued [these contested shares]." But by the way the case is proceeding the controversy may continue to drag on. For how many more decades, nobody is certain.
Earl G. Parreño is the author of "Boss Danding", an unauthorized biography of Eduardo Cojuangco, Jr.