After 23 years, the government is finally out of San Miguel Corp. (SMC). Its exit as an active stockholder has given the private stockholders more freedom in charting the continuing diversification of the company to become a truly global conglomerate. Not that the government men are a stumbling block to SMC’s expansion. But with whoever is the president of the Philippines exercising the prerogative to nominate his or her favored allies, there persists the suspicion that directorship in San Miguel is an incentive which could be used to pay political debts. Unluckily for the next president, he or she would no longer enjoy the privilege of naming his or her men to SMC’s board because of a corporate move called swapping.

Having exchanged its 753.848 million SMC common shares with preferred shares, the government has, in effect, given up its four seats in the 15-man board of the Philippines’s fast-diversifying conglomerate. Its preferred shares may earn the government more, but in opting for a return much bigger than P0.35-per share quarterly cash dividend, it loses the right to elect directors. As a result, Jesusa Victoria H. Bautista can no longer keep her directorship in SMC, San Miguel Purefoods Corp. and San Miguel Brewery Hong Kong Ltd. Mrs. Bautista, who is also known as actress Lani Mercado, is the wife of Sen. Ramon “Bong” Revilla.

Aside from Mrs. Bautista, the three other government-elected directors also have to go and, in the process, they will lose the pay and perks that SMC generously grants not only its top executives but also the members of its board.

(Incidentally, Winston F. Garcia, president, general manager and vice chairman of the Government Service Insurance System (GSIS), is not one of the three other SMC directors who would lose their directorship because he is an independent director nominated by SMC chairman and chief executive officer Eduardo Cojuangco Jr. Garcia used to represent GSIS in the board when the pension fund was still a stockholder entitled to elect a director.)
 
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Just how generous SMC has been, and still is, to its policymakers and its top executives is shown in a filing posted on the website of the Philippine Stock Exchange. The posting shows how SMC has been pampering its highest paid executives with fat salaries and bonuses: P262.4 million in 2007; and P202.9 million in 2008. This year, their total pay has been estimated at P202.3 million.

In the same filing, SMC did not specify the pays and perks of its directors. Instead, it included these in the amounts that fall under the heading “all other officers and directors as a group unnamed—P709.2 million in 2007; and P281.3 million in 2008. In 2009, the company placed the group’s total pay and perks at P194.1 million. The amounts received by the directors include the “2 percent of the profits obtained during the year” as provided for in the SMC charter. In addition, the company also pays its directors P10,000 for each board meeting attended.

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By the close of yesterday’s trading, the government, which owns 753.848 million SMC shares or 23.88 percent, will hold the same number of Series I preferred SMC shares, which carry an issue value of P75 per share. This means the government’s wealth in San Miguel is going up 11.642 percent to P56.539 billion from P50.643 billion based on SMC’s closing price of A and B shares on October 2. But it may not be the 11 percent addition that should make the government happy but the 8-percent dividend rate per annum “computed in reference to the issue price.” This would translate to a gross return of P4.523 billion per annum, an amount that would more than make up for the loss of votes. In the last three quarters of 2009, the government received P791.541 million in cash dividend at P0.35 per quarter.

Incidentally, SMC’s common shares-to-preferred shares swap offer “is limited to 1.104 billion shares.” It failed to hits this target, and instead, attracted only 873.173 million shares or 27.656 percent, consisting of 476.297 million “A” shares and 396.876 million “B” shares. The exchange leaves SMC with 2.284 billion outstanding shares, which would be the basis in computing the ratio of ownership of the remaining stockholders. For instance, ECJ Companies, which is controlled by Cojuangco, would own the equivalent of 21.452 percent of outstanding, up from 15.52 percent, based on the pre-swap 3.157 billion outstanding shares. Similarly, Q-Tech Alliance Holdings Inc. would own 27.524 percent, up from 19.91 percent and SMC Retirement Fund would be credited, not with 28.8-percent ownership but with 39.809 percent.

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As the top stockholders, ECJ Companies, Q-Tech Alliance and SMC Retirement Fund combine for 88.785 percent, leaving “outsiders” with 11.215 percent. With this ownership profile SMC could still qualify as a public company even if 193.231 million shares or 8.46 percent are still certificated and not lodged with the PCD Nominee Corp. When this is added to the ownerships of the top three stockholders, these would total 97.245 percent, which would give the public 2.755 percent of 2.284 billion outstanding shares, or 62.927 common shares.

Summing up, after the common shares-preferred shares swap, SMC will have 2.284 billion outstanding shares. Based on the listing as of June 30, 2009, this would consist of 1.291 billion “A” shares and 801.899 million “B” shares, which are lodged with PCD Nominee and 191 million shares which are certificated, meaning these are held by individual stockholders who still prefer their holdings in stock certificates.

(In an update it filed on Monday, SMC said its outstanding capital stock after the swap consists of 1.448 billion common “A” shares, 840.456 million common “B” shares and 873.173 million Series I preferred shares. Included in the computation are the certificated shares not lodged with PCD Nominee.)