August 23, 2010
Control issues, price crash Pure Foods sale
It could have been one of the biggest Philippine corporate deals this year, valued at US$1 billion to US$1.8 billion by analysts but the much-anticipated sale of San Miguel Corporation's stake in San Miguel Pure Foods Co. Inc., failed to materialise last week after corporate directors decided to keep its majority in its subsidiary.
Pure Foods is the country's leading brand of hotdog, ham and sausages.
In a statement, San Miguel president Ramon Ang said the final bidders "had sought 100-percent ownership," and at this time, the SMC board has decided that "all that should be currently under offer by San Miguel is the sale of a minority stake in our food group."
While San Miguel refused to identify the final bidders of Pure Foods, sources said the company was negotiating with two bidders - Universal Robina Corporation (URC) of business tycoon John Gokongwei and the tandem of Joselito "Butch" Campos Jr. of Del Monte Pacific Ltd. and Ricardo Po of the Century Pacific Group of Co.
Campos also owns the closely-held United Laboratories Inc., the country's largest pharmaceutical and health care company. Century Pacific, on the other hand, makes Century Tuna, the most popular brand of canned tuna in the Philippine market.
The talks between the Campos-Po group and San Miguel's board reportedly reached an advanced stage. However, the issue of control of Pure Foods between both sides, apart from the price, became contentious that resulted in a deadlock. The Campos-Po group reportedly found the offer price "too high".
Meanwhile, URC failed to pursue an aggressive stance to buy Pure Foods - which owns such brands as Pure Foods, Magnolia, Monterey, San Mig Coffee, and B-Meg - because it also found the selling price too high.
URC, a known rival of Pure Foods, long wanted to put up its own hotdog brand to get a piece of the multibillion-peso hotdog industry.
The sale also attracted the Aboitiz group and two foreign funds, the Luxembourg-based CVC Capital Partners and the Washington, DC-based Carlyle Group.
According to GMA News, San Miguel was supposed to use the proceeds of the sale of its Pure Foods stake to finance its own aggressive diversification to high-growth industries, such as power, mining, oil refining, telecommunications, and infrastructure.
SMC said selling a portion of its existing core businesses is one way the company is raising funds to support its ongoing diversification into heavy industry.
As the talks with the Campos-Po tandem ended in a deadlock, analysts pointed out that San Miguel may have to resort to a share sale or a follow on offering.
Pure Foods earlier said it might raise as much as PHP5 billion (US$111.07 million) from the sale of 75 million shares this year. The company has chosen JP Morgan as financial adviser for the share sale.
But this is a different story as Pure Foods plans to use the money from the sale of its shares to pay parent San Miguel for acquiring food-related brands and intellectual property rights as well as the purchase of the Vietnam food business.
Under the share sale, Pure Foods would sell 75 million shares to San Miguel, third parties, or via market placement. The shares would be culled from an increase in the company's authorized capital stock to PHP2.46 billion (US$54.64 million) from PHP1.4 billion (US$31.10 million).
The share sale would widen Pure Foods' public float to between 24 percent and 31 percent from the current 1 percent.
San Miguel bought Pure Foods from the Ayala Corporation in May 2001 worth US$138 million for 94 percent of the company and integrating its operations with the San Miguel Food Group.
Pure Foods operates it businesses through subsidiaries, such as San Miguel Foods Inc., San Miguel Mills Inc., The Pure Foods-Hormel Company Inc., Magnolia Inc., PT San Miguel Pure Foods Indonesia, San Miguel Super Coffeemix Co. Inc., Monterey Foods Corp., Great Food Solutions, and RealSnacks Manufacturing. Corp.
It has established partnerships with international companies such as Hormel Foods International Corp. of the United States, Super Coffeemix Manufacturing of Singapore, and La Salle Financials of Indonesia to access the latest technologies and expertise in food manufacturing.
In 2009, Pure Foods reported a net income of PHP2.7 billion (US$59.97 million) from PHP149 million (US$3.30 million) in 2008. Revenues that year hit an all-time high of PHP75 billion (US$1.66 billion).
This year, the company registered a net income of PHP1.8 billion (US$39.97 million) in the first six months from PHP540.6 million (US$12 million) a year earlier.
