AYALA AFTER THE SPLIT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00494R001100710133-1
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: July 26, 2010
• Sequence Number: 133
• Publication Date: September 12, 1985
• Content Type: OPEN SOURCE

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v I `% 1 12 SEPTEMBE^ '?85
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(COVER STORY COMPANIESj~-
gyala's property empire after the split
Zobel house divided
By Jose Galang in Manila
X In its 150-year history.
Philippine property giant
Ayala Corp. has sur-
vived two world wars.
one revolution. two col-
onial regimes and al-
most nine years of martial law. Yet
its worst crisis was probably the rift.
in 1983, of the family which spawned,
nurtured and still controls the corpora-
tion. The squabble, caused by funda-
mental differences in management
ideas, led to a split which reached as
high as the corporation's two most
senior officers.
To many the conflict only high-
lighted Ayala's ability to weather a
storm while keeping a firm footing in
Philippine business, despite the nation's
economic and political crisis. Beyond its
substantial land and other property
holdings, Ayala's recent shift from the
previous "dictatorial" to a more "demo-
cratic" form of management is enhanc-
ing confidence within the organisa-
P 1.79 billion (USS96.2 million), includ-
ing P448 million of land and P 17.3 mil-
lion of property and equipment.
Ayala's thrust into real-estate deve-
lopment in the late 1940s - the original
partnership founded by Roxas and de
Ayala had ventured by then into sugar
and cotton farming, alcohol distilleries,
coal mining, manufacture of dyes and
rope and operation of street cars -
exemplified the bold moves which
characterised the family's business. By
developing tracts of its Makati property
south of Manila (against the trend of the
time, which was towards development
north and east of the city), the Ayala en-
terprise firmed up its entrepreneurial
image.
The group also emphasised quality in
its developments, unusual for that time.
Today, Ayala-developed residential
areas such as Forbes Park, Dasmarinas
Village, Magallanes Village and New
Alabang Village are home to many mid-
dle- and upper-class families and most
I
: Revenue
(P million)
111111INN~
13.95
Nett Tot
'
profi assets
131
Stockholders' 'I
equity
..-F
. 93.18 ' ?'
1 61.36
235
20i.2~` "
1 223.22
1,008
x.28
1 259.47 1
51.84. 1,238
-5
.04~
1 337.38
1,402
1
908.a 4
1 389.36
fdft% 1,497
:50
1 399.64 1
"
0& . 1,783
043.36
1 657.91 1
.
,16 1,63
025.21
635.93 .
4Z.l' 1,791
1
131.3!
Lion - an important ingredient for
growth.
Growth seems to come as a matter of
course at Ayala. From a partnership be-
tween Spanish landowner and entre-
preneur Domingo Roxas and his em-
ployee Antonio de Ayala who together
in 1834 set up a crude distillery (De-
stiferia y Licoreria de Ayala y Com-
pania), the Ayala empire has grown to
include financial institutions, food-pro-
cessing plants, electronics manufactur-
ers, entertainment houses and trading
operations. Its primary assets are still in
property - mainly in Manila's financial
district of Makati - which evoke an
image of stability. This has been an im-
portant strength, particularly during the
harsh domestic economic conditions
which have resulted in a slew of major
corporate failures over the past two
years.
Ayala's image has become a major
factor in the post-split decisions of both
camps in the family feud. Enrique
Zobel, who was chairman and president
of Ayala from 1968 (when the original
partnership structure was reorganised
into a corporation) until his retirement
in October 1983 (some say it was an
ouster because it came two years earlier
than scheduled), has labelled the flag-
ship of his new operations with the
"Ayala" name - the Liberian-regis-
tered Ayala International Holdings
(AIH), through which Zobel now ope-
rates overseas.
The current Ayala management, led
by Zobel's younger cousin Jaime Zobel
de Ayala, persistently declares that the
group has nothing to do with Zobel's
operations. Sources say these "clarifica-
tions" are intended to isolate the Ayala
image from Zobel's continuing haran-
gue at economic and political institu-
tions in Manila. (Even before he left
Ayala, Zobel was publicly critical of
policies of Marcos and government
technocrats, and was at one time
suggested as a possible presidential can-
didate.)
T here is bitterness, despite the polite
farewells and generous outpourings
of gratitude during formal ceremonies
which marked Zobel's departure. The
split-up and the bickering detract from
the impressive growth achieved by the
group under six generations of Ayalas
(which evolved from three ancestral
families, the Ayalas, the Zobels and
landowner Roxas).
Ayala Corp. now counts nearly 60
entities among its investments. At end-
1984, Ayala itself had total assets of
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expatriates in Metro-Manila. Develop-
ment concepts introduced at the
pioneering Forbes Park have been
copied in other projects in the Philip-
pines and Southeast Asia. Ayala-de-
signed commercial centres are also
among the most progressive in Metro-
Manila.
The physical improvements which
appeared in Ayala's Makati soon at-
tracted both the country's big and small
businesses. The suffocating congestion
in inner Manila also contributed to the
trek towards Makati. A recent count
put the number of offices in the new fi-
nancial district at around 30,000.
That successful thrust into property
development, which accounted for the
bulk of Ayala's revenues until recently,
was credited mainly to Joseph McMick-
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ing. an American who married int., the
family and became involved in the
group's affairs in 1931. The feat was
made more significant by the fact that,
according to McMicking, the company
"was as short of cash as the next fellow"
while it was developing its first residen-
tial project, forcing the firm to sell off
some holdings to remain liquid.
Another high point in Ayala's his-
tory was the decision in 1968 to reor-
ganise the then 134-year-old Ayala gen-
eral partnership into a corporation.
Other old business houses, such as
another major property developer Or-
tigas and Co., lingered too long as
partnerships, finding it extremely-dif-
ficult - because of widely differing
ownership personalities and complex
government rules - to adapt quickly to
changing times. In the case of Ayala,
the incorporation was accompanied by a
turnover in top-level management. The
old guard, led by McMicking, passed on
management of the business to the new
generation led by Zobel, who was
elected chairman and president, and
Zobel de Ayala, senior vice-president.
Most other members of the three
families maintained their presence
through Mermac Inc., which has owned
about 45% of Ayala Corp. since its es-
tablishment. Four major units affiliated
with the dissolved partnership - Ayala
Securities Corp., Makati Development
Corp., Rizal Realty Co. Inc.. and Delta
Development Corp. - were merged
into Ayala in May 1968. That propped
up the status of the new corporation as
one of the largest Filipino enterprises.
With land sales and rental income
steady, the corporation was able to
maintain its growth year after year. Re-
venues rose from P 13.35 million in 1968
to P635.93 million by 1984. The corpo-
ration had accumulated assets of P 1.79
billion by 1984, from P 131.5 million in
1968. In 1968, the company had invest-
ments in three wholly owned subsi-
diaries and six affiliates. By 1983, in-
vestments in about 60 affiliates and
other companies were valued at P451
million.
The entry of Japanese equity into the
corporation in 1973, when the Mit-
subishi group bought 20% of the stock,
further enhanced the Ayala image. That
was to be the start of a string of joint
ventures between Ayala and other Ja-
panese groups in different industries.
And Mitsubishi's experience in trading
operations gave Ayala a channel to
world markets.
The turmoil of 1983-84, arising
from the murder of opposition leader
Benigno Aquino and the subsequent
upheaval that led to a severe finan-
cial crisis in the Philippines, did not
stop Ayala's revenues and profits from
rising. Land was still widely considered
a hedge against uncertainty. But' at
the same time, a different kind of up-
heaval was simmering at the House of
FAR Elt>EIMI ECONOMC REVIEW* 12 SEPTEMBER 1995
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to-
subdivision for it to
acquire the desired
Imager,
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fk At subdivision
themselves to con-
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that It was worth
moving there. Sub-
s egaeatly, security
in the area had to be
tightened because a
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AyalaArwrus: home In Large
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alai 1114111111111111111 Willing at I:6 (32 US-
cents) a not, a bargain when compared to going.
catcall= flames higher for lots along Manila Bay.
The up-market concept becaat so successful that Ayala was soon duplicat-
i projech- San Lorenzo V e in 1952, Bel-Alin In 1954, Ur-
doneft M and D in 1%2. Another Ayala pro-
)Oct, San which was opened in 1960, did not develop quite like the
odkm
At the Makati commercial centre, land is not for sale. Rather, property de-
velopua to erect buildings can only get 25-year teases, That, according
taAyndi, is Intended to retain control over how the land Is being used. In pre-
vioms roman ljecb, the arras became blighted as property owners im-
pleae fed dh'Me developments according to their own Ideas.
The commercial centre's main thoroughfare, Ayala Avenue, is currently
home to most of the country.'s largest corporations and. banks. Development
7;hwLspiftd over to surrounding areas, where rents are currently lower.
for the commercial centre have been prepared beyond current
ts,. By 1990, for instance, the main structures will be replaced with
=" to accommodate i,(projected much bigger population.
PLANNED SUCCESS
Ayala Corp.'s ventures into real-estate development thrived
on the "snob appeal" of the projects. The plush Forbes Park
residential subdivision. which launched the conglomerate into
the property business in the late 1940s, was a natural attraction
for the well-to-do trying to recover from the ra% ages of World
War U.
The commercial centre initiated in the early 1960s in Makati, a former
gradasd far from the congested city core. on the other hand, ittled with the ia-
creased demand for office and commercial space precipitated by the country's
eagerness to jump into industrialisation.
A sister project to Forbes Park, the Alabang Village, developed south of
Makati in the late 1970s came just In time to satisfy the needs of an expanding
middle dam. Whether a planned similar residential undertaking in Quezon
City, north of Manila, wit gain the sane response from a middle class that is
currently taking a beating from adverse economic conditions remains to be
seen.
Ayala retained firm control over the areas of these projects to ensure itself
against deviations from the pinned up-market image. In exchange for this
control' Ayala pegged selling prices and rental rates that were lower than
those prevailing in other developments.
Forbes Park, still the most prominent feather in Ayala's property develop-
ment cap, was undertaken at great risk. When ground was broken for the pro-
in 1948, most development was taking place in the northern and eastern
fmss of Manila, the only areas to put up a business according to the conven-
tional wisdom at that time.
!r'Oject s proponent, Jaieph McMicking who teamed up with Enrique
Zobel de Ayala'ssecond son, Affredo, in overseeing the Ayyaala dam's business
interests - the eldpt sou Jacobo (the father of Enrique Zobel, Ayala chair-
men and president firoas 1968 to 1983) was pursuing a military career at the
time - envisioned a eomrtry-club atmosphere for Forbes Park. He even
Aegotiated the
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 Sanitized Copy Approved for Release
Ayala, The family was locked in a bitter
dispute over Zobel's earlier withdrawal
of Ayala investment from San Miguel
Corp.. a diversified beer-and-food con-
`lomerate.
San Miguel was then run by a Zobel
cousin, Andres Soriano Jr. who had
been receiving treatment overseas for
brain cancer. Zobel, according to
sources, had noted that Soriano ap-
peared to be leaning politically towards
the government of President Ferdinand
Marcos. Zobel, at the time, was actively
involved in the affairs of the newly or-
ganised Makati Business Club, a forum
of business groups formed to evaluate
economic trends and suggest possible
solutions. The club took mainly critical
views of government economic policies.
But the most widely known reason
for Zobel's direct challenge to the San
Miguel leadership was the power vested
in Soriano by the board of directors in
1982 to assign these broad powers to
other San Miguel executives. Feeling
bypassed (given that Ayala then owned
the biggest block of shares
in San Miguel), Zobel
contested the action be-
fore the Securities and
Exchange Commission.
Losing that, Zobel in Jan-
uary 1983 started buying
San Miguel shares, osten-
sibly in preparation for
the May stockholders'
meeting. Soriano retalia-
ted b rounding up shares
at-I higher price. Zobel
-ended up selling his hold-
ings, at a profit, to the
group of coconut industry
magnate and Marcos
crony Eduardo Cojuang
co (who had no previous
direct ties to AyYala,
though his United Coco-
nut Mills had in 1979
bought some coconut-oil mill facilities
from Ayala' Corp.), who eventually
gained control of San Miguel after
Soriano's death in 1984.
Losing the battle with Soriano,
Zobel withdrew investments of the
Ayala group from San Miguel. Al-
though the move initially had the ap-
proval of other family members, after
Zobel convinced them that keeping the
company out of politics would be to its
best financial interest, the disappoint-
ment at losing that placement in a
proven profitable venture became an ir-
ritant in family relationships. Insiders'
said that McMicking, the family pat-
riarch, was most critical of Zobel's deci-
sion.
I t has never been acknowledged
publicly, but the strained relationship
led to Zobel's early retirement from
Ayala Corp. He stayed longer at the
Ayalas' financial flagship, the Bank of
the Philippine Islands (the second-
largest private domestic commercial
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.nk in terms of assets), but also retired
from that post two years earlier than
due in March 1985. Mermac has the
biggest single block in Ayala and the
McMickmgs are widely known to exer-
cise their power at times. Mitsubishi has
remained on the sidelines.
Many Ayala employees say their
morale now is higher, especially after
seeing Zobel de Ayala's "fresh manage-
ment approach" over the past year -
despite his 25 years as vice-chairman
and senior vice-president under Zobel.
While Zobel was known for his "dic-
tatorial" and "paternalistic" style, most
Ayala executives welcome Zobel de
Ayala's "democratic" form of manage-
ment. They say that Zobel de Ayala has
made the company's management com-
mittee a true venue for decision-mak-
ing. Under Zobel, that committee was
merely a ceremonial forum which con-
vened with an agenda already finalised
by top management, according to some.
The two personalities differed in
other ways. _personalities
was more outgoing,
while Zobeh de Ayala is quiet and re-
served. In fact, some say Zobel de
Ayala is difficult to approach. Zobel has
basic training in agriculture, having
studied animal husbandry in California.
Zobel de Ayala, who insists he is "peo-
ple-oriented," took the Advanced Man-
agement Programme at Harvard Uni-
versity Graduate School of Business.
He was the Philippine ambassador to
the Court of St James for four years
from 1970.
One. of the first things Zobel de
Ayala ordered when he took over at
Ayala was a hiring freeze - but no re-
trenchment. He also trimmed what he
saw as excess fat in the corporation. In
the first year of Zobel de Ayala at the
helm, Ayala increased its 1984 net profit
by 22% to P 142 million. Revenues,
however, declined from P658 million to
P636 million "mainly on account of the
absence of major asset and investment
disposals in 1984." Total assets ex-
panded 10% to P 1.79 billion at the end
of 1984. He has mentioned plans to in-
crea nvestment in a semiconductor
'firm.
Zobel's reported strong-arm style of
management is not to he faulted, how-
ever. In many Philippine companies.
such a style has proved effective in ex-
tracting both loyalty and results from
workers, according to experts. How-
ever, there has been an apparent shift
towards other. more scientific methods
in recent years.
S ome businessmen who follow Zobel's
operations say that in his later
years with Avala he had become "more
involved in [the] high-finance type of
operations." For instance, the Liberia-
registered AIH. which he bought from
Ayala upon his retirement for nearly
P200 million, has been identified with
little-known projects which are not
viewed as being as successful as those
undertaken by the conglomerate at
home.
Zobel also had some deals which
have turned out to be far from initial ex-
pectations. One was the sale of the
Ayala share in the Hongkong-based
China Underwriters Life and General
Insurance Co. to the Carrian Group.
Ayala encountered difficulty in collect-
ing payments for that sale. In 1982,
Zobel also established ties with Bishop.
Baldwin. Rewald. Dillingham and
Wong, a Hawaii-based investment firm
which later was alleged, in US media re-
ports, to be a CIA operation aimed at
launching destabilisation campaigns in
Hongkong and Manila (REVIEW,
20 Oct. '83). (The CIA has denied this.)
The company went bankrupt in 1983.
but Ayala's Honolulu office then said its
investments had been pulled out in
time:
Zobel is currently bullish about pros-
pects for the Brunei-based Island Deve-
lopment Bank (IDB) of which he was
recently named chairman. Zobel's out-
fit owns 20% of IDB. Another 20% is
owned by Japan's largest bank. Dai-Ichi
Kangyo, while the majority interest is
owned by the sister of the Sultan of
Brunei. Princess Rashidah, along with
the royal family's OAF Investments.
Also, a 50-50 joint venture between
Zobel's AIH and Merrill Lynch and Co.
of the US, called Merril Lynch Ayala
International, operates from Singapore.
In Manila, Zobel has E. Zobel Hold-
ings Inc., Enzo (Philippines) Manage-
ment Inc. and Ayala International
(Philippines) Inc. No other member of
the Ayala family is known to be an in-
vestor in Zobel's businesses. During
ceremonies marking Zobel's retirement
from Ayala, some executives recall him
saying that "the tide may reverse in the
future." This was interpreted as a desire
to return to the conglomerate at some
later time. However, that possibility
may have been pre-empted by a recent
amendment in the Ayala by-laws ban-
ning a competitor from seeking a board
seat. p
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