IN THE HEADY days of the 1980s that ushered in the age of titanic takeovers, Wall Street's finest devised a defence strategy to ward off unwanted advances from voracious bidders. The Pac Man Defence took its name from the video arcade game that featured an insatiable pizza-shaped blob that roamed the screen devouring all in its path. Often used as a last-ditch effort to save a company from a raider, the Pac Man Defence entailed the victim turning on the assailant to acquire it instead.
An insatiable acquirer
Eduardo Cojuangco Jr (pictured left), known throughout the Philippines as Danding Cojuangco, also boasts another soubriquet - Pac Man. He got it because of his insatiable appetite for acquiring smaller businesses to add to his ever-expanding empire, headed by the huge brewing and consumer goods company San Miguel Corporation (SMC). Cojuangco, a scion of one of the country's wealthy and politically powerful dynasties, recently suffered a serious setback at the hands of the local graft court, the Sandiganbayan, which ultimately might even trigger the unravelling of his empire.
A legal battle that has raged for 17 years between the government and Cojuangco emanates, as do many problems facing this archipelago nation, from the dictatorship of Ferdinand Marcos with whom Cojuangco had close links. Cojuangco even fled the country on the same flight as the dictator in 1986 when people power swept president Corazon Aquino into office.
Between 1973 and 1982, under a presidential decree now ruled unconstitutional by the Sandiganbayan, Marcos levied a tax on Filipino coconut farmers, ostensibly to finance the development of the coconut industry. He appointed Cojuangco as the administrator of these funds.
According to the Presidential Commission on Good Governance (PCGG), established to recover the billions of dollars allegedly stolen during the Marcos regime, Cojuangco used the money, an estimated P100 billion ($2 billion), to establish effective control over a 72.18% interest in a bank now known as United Coconut Planters Bank (UCPB).
The defence maintains that Cojuangco's only direct interest in UCPB is a 7.2% stake acquired as a commission for facilitating the acquisition on behalf of the Philippine Coconut Authority (PCA) and that the remaining 64.98% stake is held for the benefit of about a million coconut farmers.
In July, the Sandiganbayan ruled that since the tax funds raised from the coconut farmers by presidential decree under Marcos were public in character, the 64.98% of UCPB shares acquired allegedly for the benefit of the coconut farmers in fact belong to the state. The Sandiganbayan also ruled that since Cojuangco invested no money in acquiring the 7.2% stake in UCPB, but earned it as commission, he was not entitled to make any profit on the transaction and these shares also belong to the state.
By nullifying his holding in UCPB the Sandiganbayan appears to have raised the prospect of Cojuangco losing control of SMC itself because UCPB administers a 27% stake in the corporation. This stake was also sequestered by the courts in 1986 pending the outcome of this ruling, on the same grounds - that the funds used to acquire the stake were public in nature.
If the Sandiganbayan ruling is upheld, the state will definitively control 27% of SMC (the government already appoints directors to the SMC board by virtue of the 27% interest). A further 20% stake in SMC owned by Cojuangco is also under investigation on different grounds - that it was acquired with ill-gotten wealth under the Marcos regime. This case is still pending. Cojuangco claims that he borrowed funds from UCPB to acquire the stake in a commercial transaction; the government argues that since the coconut tax funds were deposited in UCPB, the money used by Cojuangco to acquire the 20% SMC interest was in fact money from the coconut funds.
If the government wins this case, Cojuangco will lose control of SMC, which is a key part of his business empire.
Although the legal case is complex, at its heart is whether Cojuangco and his associates used government funds to acquire assets for their personal benefit. A Supreme Court ruling in 2001 said that the funds raised from taxing coconut farmers were "public in character" and left it to the anti-graft court to make a final ruling.
The case is clear for Ruben Carranza, commissioner for the PCGG and the man responsible for pursuing the cases against Cojuangco: "They [the Cojuangco camp] continue to insist that Cojuangco only acquired 7.2 % [of UCPB] as a commission for acting as a middleman. But by his own admission, all of the money went through him."
But Estelito Mendoza, attorney for Cojuangco, a director of SMC and solicitor general under the Marcos regime, says: "There is absolutely no basis that [Cojuangco] has used [government] funds in these transactions. It was the PCA, not he, who used [the] funds to purchase the shares."
About the 7.2 per cent stake also deemed government-owned, Mendoza is equally adamant: "Whether or not the funds which were used to buy the shares are public funds or not," he says, "as a matter of law and equity, he is entitled to make a profit."
Dolores Español, who spent three years at PCGG investigating Marcos's cronies, including Cojuangco, is now chairperson at the Philippines chapter of Transparency International, a worldwide NGO seeking to stamp out corruption. She says: "The government collected the taxes. How these funds were given to Cojuangco, no-one can say. The proof is not available." Español, a former judge, believes that politics has now overshadowed legal proceedings.
The Cojuangco camp has already appealed against the Sandiganbayan ruling that overturned his ownership of the stake in UCPB. And though the present government is pursuing him hard, he may have an even bolder Pac Man move up his sleeve. Cojuangco may turn around and run for president of the Philippines himself.
Cojuangco has intimated that he might run for president in the election in May next year, but is hedging his bets, perhaps waiting to see if the incumbent will run. Even though earlier this year Gloria Macapagal Arroyo ruled herself out for re-election, many believe she will stand.