Philippine Billionaire Merges Airlines to Boost Investor Appeal

(Bloomberg) -- Philippine tycoon Lucio Tan will consolidate his airline ventures as he focuses on expanding his flagship PAL Holdings Inc. and increase its appeal to potential buyers.

PAL will acquire another company owned by Tan called Zuma Holdings & Management Corp. through a share-swap agreement, valuing the whole deal at 8.24 billion pesos ($166 million), the company said in a stock exchange filing Friday. The purchase will consolidate Philippine Airlines Inc. and budget carrier Air Philippines Corp.

“The integration of both businesses into a single organization structure would make PAL a more viable investment for interested investors,” PAL said in the statement. Consolidating the two airlines will also reduce costs and increase revenue, it said.

Philippine Airlines is in talks with potential investors and is seeking one with experience in running carriers so it can help manage its fleet, the carrier’s President Jaime Bautista said in June. The company is also open to private equity funds and other strategic investors.

The reorganization comes as competition intensifies among carriers in Asia Pacific, where a dozen new airlines started operations in the past decade.

“Consolidating the airlines is very positive and will allow PAL to fetch a higher price from potential buyers,” said Victor Felix, an analyst at AB Capital Securities Inc. in Manila. “Creating synergies for both carriers means that PAL is also intent on ramping up its domestic operations and get a larger piece of the market share.”

Under the deal, PAL will issue to Zuma owners Cosmic Holdings Corp. and Horizon Global Investments Ltd. 19 shares in exchange for one Zuma stock, according to the statement. Trading of PAL shares, which closed 2 percent higher on Thursday, was suspended.