San Miguel Plans to Make $5 Billion Purchase

San Miguel Corp. (SMC), the Philippine food and drinks company that expanded into energy and aviation, has bid to make a $5 billion acquisition, according to President Ramon Ang.

The Philippines’ largest company made an initial offer for a deal that may be completed this year, Ang told reporters in Manila on Oct. 20. San Miguel is competing with other regional companies and hopes to make it to the final list of three potential buyers, he said, declining to identify the target company or say what industry it’s in.
“This is going to be a big transaction,” Ang said of the target. “We’re also conducting due diligence on several regional airlines for a possible acquisition.”
San Miguel, brewer of the century-old namesake beer brand, has diversified from food and drinks to industries including oil, power and infrastructure to meet a goal of doubling sales. The company bought almost half of Philippine Airlines Inc. and low-cost affiliate Air Philippines Corp. in April to boost sales to almost $20 billion this year and $30 billion by 2017, Ang said in an interview that month.
San Miguel shares fell 0.3 percent to 109.7 pesos as of the midday trading break in Manila. The stock has declined 6.1 percent this year, compared with the 24 percent gain in the benchmark Philippine Stock Exchange Index.
Company ‘Vision’
“The company has a vision of what it wants to do,” said Jose Vistan, research head at AB Capital Securities in Manila. “So far, the market doesn’t seem to share that vision and sees the risks more than the potential benefits.”
San Miguel was invited to bid for an investment in a company it can’t name and is not in a position to disclose features of the “opportunity” because of confidentiality rules, it said in a filing to the stock exchange today.
Philippine Airlines signed an agreement in Manila on Oct. 20 to buy 10 A330 jets from Airbus SAS, increasing its purchases from the company to 64. The carrier, known as PAL, is in talks with Airbus and Boeing Co. (BA) for 35 more wide-body aircraft to complete a 100-plane fleet, Ang said on Oct. 20.
The airline will start flying to Toronto on Nov. 30, giving it a direct link to Canada’s largest city, the carrier said in a statement today.
San Miguel owns the Southeast Asian nation’s largest oil company, Petron Corp. (PCOR), and is the country’s biggest electricity producer. It bought most of Esso Malaysia Bhd in March, a month before it announced the investment in PAL. San Miguel and billionaire Lucio Tan, its partner in PAL, may invest $6 billion to build a new airport in Manila, Ang said on Sept. 28.
35 Deals
A San Miguel unit plans to add 600 megawatts of coal-fired generating capacity in Visayas and Mindanao, islands in central and southern Philippines, where investment is estimated at $1.5 million per megawatt, Ang said on Oct. 20. That would mean a $900 million expansion, based on Bloomberg calculations.
The company has announced 35 deals worth more than $7 billion in the past decade, according to data compiled by Bloomberg. The brewer is expanding into heavy industries to triple the return it previously earned from food and drinks.
“The Philippines’ food and beverage business has matured and there’s been minimal growth,” said AB Capital’s Vistan. “Ramon Ang is taking a different route, and that’s the route to growth.”
In April, Ang talked about “several big” potential acquisitions, including two businesses with combined revenue of $6 billion that may be purchased this year.
Safety Issues
San Miguel’s other investments include stakes in power retailer Manila Electric Co. (MER), a toll-road venture, a company that has the contract to build the Philippine capital’s metro railway, an airport on the resort island of Boracay, and 10 percent of Indophil Resources NL, which has holdings in the Tampakan gold and copper mine in the southern Philippines.
Acquiring a regional carrier would help PAL pursue long- haul expansion amid aviation safety issues in the Philippines, Ang said in June. The country is blacklisted by the European Union and has a Category 2 rating from the U.S. Federal Aviation Administration, meaning it doesn’t meet international regulations.
“We’re hoping the prime minister can help us lift the EU ban,” Ang said during the signing of the deal with Airbus. He was referring to French Prime Minister Jean-Marc Ayrault, who was on a three-day visit to the Philippines.
(Source: Bloomberg)

San Miguel Corp. (SMC)