San Miguel Corp. is set to acquire majority share in Petron Corp. after all.

After several months of negotiations--a thriving topic in coffee shop talks--San Miguel and Petron's current majority owner, London-based investment firm Ashmore group, has sealed a deal that will give San Miguel an indirect and layered ownership in Petron, the country's leading oil retailer and refiner.

On Wednesday, San Miguel, one of the Philippine's largest and most cash rich diversified conglomerates, disclosed to the stock exchange that it has acquired not the direct shares--but the option to acquire the shares--of an Ashmore unit that currently owns majority of Petron.

San Miguel has 2 years from December 24 to exercise that option, which locks the price per share at P6.85.

In financial and legal lingo, an option is a contract that gives the buyer the right--but not the obligation--to buy a particular asset, in this case shares of stock, at a set price at some time on or before the option contract expires.

Layers

Ashmore has 2 local units: Dutch holding firm SEA Refinery Holdings BV (SEA BV), and SEA Refinery Corp (SEA).

SEA is a wholly-owned subsidiary of SEA BV.

San Miguel entered into an agreement with SEA BV for the option to buy its entire stake in SEA.

Ashmore has been snapping Petron shares from previous owners since early 2008 through SEA and SEA BV.

Ashmore previously parked in SEA the 40 percent Petron stake it bought from Saudi Aramco in early 2008. Then SEA added 11 percent more stake in Petron when Ashmore made a required tender offer to other shareholders. Ashmore paid P6.53 per share for the total 51 percent stake.

Last December 19, Ashmore sealed the deal with the government to buy state-owned Philippine National Oil Company's (PNOC) 40 percent stake in Petron. Ashmore parked the 40 percent from PNOC that it bought for P6.85 per share in SEA BV.

After several shuffling of Ashmore's total 90.57 percent, its two units now have the following stake in Petron:

• SEA has a total of 50.1 percent
• SEA BV has a total of 40 percent

In effect, when San Miguel decides to exercise its option to buy the shares of SEA, it would end up owning 51 percent in Petron.

Ashmore, on the other hand, will still have a 40 percent stake through SEA BV.

The remaining shares--about 9 percent--are held by the public.

Financing the deal

San Miguel said it might use a combination of debt and cash accumulated from divestments from major overseas businesses and some local units, to fund its acquisition of Petron shares.

“The company will use internally-generated funds and may avail of external borrowings, if necessary, to pay for the purchase price,” San Miguel said in a disclosure to the exchange.

San Miguel said it has tapped Swiss investment bank UBS as its financial adviser for this transaction.

Ashmore paid the Philippine government P25.657 billion for buying the 40 percent stake of state-owned PNOC in Petron. Ashmore lodged this 40 percent chunk into SEA, which San Miguel has acquired an option to purchase within 2 years.

Tender offer

Coffee shop talks were rife that San Miguel was the real buyer of the additional shares acquired by Ashmore from the government apparently in a bid to circumvent the tender offer rule.

Under the tender offer rule, any investor who buys at least 35 percent of a company must offer the same terms to other shareholders of the target firm.

The PSE earlier said San Miguel would have to make a tender offer to minority shareholders of Petron if it succeeds in acquiring a majority stake in the country's largest oil refiner by sales.

Earlier, San Miguel also skirted the tender offer rule when it bought shares in Meralco. (Read inside story here.)

San Miguel has been looking to invest outside its core businesses of beer, beverages, dairy products and food processing.