San Miguel Corp. (SMC) said it will raise $2 billion from the sale of its stake in Manila Electric Co. (MER) to JG Summit Holdings Inc. (JGS), helping fuel expansion into airlines, energy and infrastructure.
Manila Electric, also known as Meralco, surged 4.4 percent, the most in five months, after the deal was announced. San Miguel, the Philippines’ largest and most acquisitive company, and its units hold about 27 percent of the country’s largest electricity retailer.
The transaction will be the latest in a series of purchases and sales by San Miguel, which started as a brewer more than 100 years ago. JG Summit’s purchase of a stake in Meralco, which sells electricity to a quarter of the nation’s population, marks retail and property magnate John Gokongwei’s entry into the power business and fortifies his alliance with billionaire Anthoni Salim’s First Pacific Co. (142)
“Manila Electric remains a very valuable franchise with an attractive dividend yield,” said James Lago, head of research at PCCI Securities Brokers Corp. “This Gokongwei-First Pacific partnership could lead to other things. San Miguel will use proceeds from the sale to fund projects and possibly refinance debt.”
The sale was announced by San Miguel in a regulatory statement that didn’t include a price. The transaction will raise $2 billion, company President Ramon Ang said in a mobile-phone text message today. He confirmed the funds raised will be used for investments.
Ang plans to raise about $4 billion selling power assets, he said in a July interview, helping fund a $35 billion investment plan to complete his transformation of the brewer and foodmaker into an investor in airlines, energy, mining, railways and roads.
San Miguel, started more than a century ago when the Philippines was still a colony of Spain, has made more than $5.6 billion worth of acquisitions since 2008, when it announced an investment in Meralco. Its most recent purchase was 35 percent of Northern Cement Corp. for 3 billion pesos ($69 million)
Meralco climbed 4.4 percent to close at 286 pesos in Manila trading, the biggest gain since April 17. San Miguel advanced 0.4 percent to 74.80 pesos after initially rising as much as 2.8 percent. JG Summit fell 1.8 percent to 38.60 pesos.
Most of the San Miguel-owned shares were acquired for about 90 pesos each about 5 years ago, according to the company.
San Miguel and its units held 32.8 percent of Meralco until July this year when the group started selling the shares.
Meralco provides electricity to an area that accounts for half of the nation’s gross domestic product. The company, 49.96 percent owned by First Pacific, had a second-quarter profit of 5.42 billion pesos, down 15 percent, according to data compiled by Bloomberg. It’s returning to power generation after a four-decade hiatus, with plans to build plants to meet as much as 30 percent of the main Luzon island’s demand.
Manuel Pangilinan, managing director of First Pacific, in November 2009 beat San Miguel for control of the utility and ended battle for control that more than tripled Meralco’s share price that year.
JG Summit, owner of the country’s largest budget carrier and the second-largest shopping mall operator, had 56.3 billion pesos in cash and short-term investments at the end of the second quarter, according to data compiled by Bloomberg. In 2011, it sold its telecommunication unit to Philippine Long Distance Telephone Co. (TEL), where First Pacific is also an investor.
“This transaction gives Manila Electric a more cohesive board to pursue a strategy with a single mind,” said Jonathan Ravelas, market strategist at BDO Unibank Inc., the nation’s largest lender. “This is an extension of Gokongwei and Pangilinan’s alliance in PLDT.”
JG Summit and the Philippine infrastructure unit of First Pacific plan to jointly bid for a 17.5 billion-peso airport project in Cebu province. JG Summit President Lance Gokongwei in June said the group’s capital spending will increase to $1.03 billion this year from $926 million in 2012 on higher spending for its property, airlines, petrochemicals and food ventures.