Lucio Co, BAT eye Mighty rescue

MANILA, Philippines - Retail tycoon Lucio Co, in partnership with British American Tobacco (BAT), is reportedly being lured to rescue Mighty Corp., the cigarette company at the center of a multibillion-peso tax stamp issue, industry sources said over the weekend. 

The BAT-Co tandem is in advanced talks with the Wongchuking family, the owners of Mighty, who in turn is expected to make a final decision on the matter by June, the sources added. 

Earlier reports claim other tobacco firms, including Associated Anglo-American Tobacco Corp. and Japan Tobacco Inc., have also reportedly expressed interest in acquiring the company.

However, members of the family are of two minds on what to do, with some of the six Wongchuking siblings still keen on giving a good fight in honor of their father and company founder, the late family patriarch Wong Chu King.

A source said Mighty is looking to sell only its assets – some machinery and other equipment – and maintain its sprawling nine-hectare property in Bulacan which it could lease to tenants.

One of the company’s cigarette machinery alone costs P3.2 billion, the source said.

BAT, maker of Lucky Strike, and Co, the Puregold owner who is the 11th richest Filipino according to Forbes 2016 list of billionaires in the country, could help revive Mighty which at present is hardly operating after the Bureau of Customs (BOC) suspended its license to import raw materials. 

The STAR earlier reported that Mighty’s import license would be suspended due to product mis-declaration. A month later, the BOC slapped the suspension order. 

The company has not been able to import raw materials since the BOC ordered the suspension on March 14 and is merely relying on its remaining inventory which is already thinning out and has a shelf life of just six months. 

BAT has long been eyeing a partnership with Mighty to be able to become a bigger player in the Philippines. 

Mighty, which traces its roots to La Campana Fabrica De Tabaccos Inc. in 1945 has grown through the years and now has a 30 percent market share of the local cigarette industry -- which rakes in an estimated P150 billion a year --  from just a little-known player with a two percent market share in 2012.

The company now has three operating plants in its Bulacan factory: the tobacco processing plant and two cigarette manufacturing facilities. The tobacco processing plant includes fermentation of tobaccos for the cigar blended products.

Mighty’s brands include Mighty, Campanilla, MAS, L.A Menthol and Marvel.

Meanwhile, dealing  another blow to Mighty, a number of retailers have ceased selling products of the  Bulacan-based tobacco firm following the government’s ruthless crackdown on tax evasion.

The Philippine Amalgamated Supermarkets Association said some retailers have began pulling  out Mighty products from their shelves for fear of being caught selling cigarette packs that carry counterfeit or fake tax stamps.

The  move followed a series of raids conducted by the government on Mighty’s warehouses which  led to the filing of two criminal complaints against the Wongchuking-led cigarette firm for allegedly using fake tax stamps to evade payment of excise taxes amounting to almost P36.5 billion. 

Tax stamps are required by many countries as evidence that the tax was paid.  Products that don’t carry tax stamps are considered to be illegally produced or smuggled. 

 “Supermarkets are hesitant to carry the product for fear that they might be “raided” or labeled as an accomplice or colluding/conniving to sell illicit products. Negative publicity under an environment of fierce competition definitely does not help retailers jack up their cause,” said PASA president Steven Cua.

 “Out of the five active member-stores of PASA in Metro Manila we talked to, two have stopped ordering/selling Mighty’s stock,” he said.
 
Of the remaining three,  “one is waiting for stocks to deplete and will not re-order, one continues selling though sales at that outlet has slowed down with only one store left continuing to order and sell,” Cua said.

Retailers responsible for selling cigarette packs without the affixed tax stamp  can be penalized under the revised National Internal Revenue Code.

Section 263 of the NIRC prescribes a punishment of a fine “of not less than 10 times the amount of excise tax due on the articles found but not less than P500 and imprisonment of not less than two years but not more than four years.

Cua said PASA members have become innocent victims in the government’s fight against bootlegged cigarettes.  Just last month, the  BIR filed a criminal complaint against three retailers which were found to have been selling cigarettes without the requisite internal revenue stamps. 

The government, prompted by the unabated increase in illicit tobacco sales, introduced a tax stamp on all cigarette packs to generate greater revenues and seal sources of tax leakage.  Excise tax stamps must be affixed to each package of cigarettes as a way of ensuring taxpayers’ compliance.

The country loses billions of pesos a year in uncollected cigarette taxes. – with Zinnia Dela Pena.