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First Pacific May Buy San Miguel’s Manila Electric Stake

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First Pacific Mulls Buying San Miguel’s Manila Electric Stake
Power lines run above the Manila Electric Co. (Meralco) Kamagong substation in Manila. Photographer: Nana Buxani/Bloomberg

June 13 (Bloomberg) -- First Pacific Co. is considering expanding control of Manila Electric Co. by buying San Miguel Corp.’s stake in the Philippines’ largest power distributor, said Chief Executive Officer Manuel V. Pangilinan.

“We’re still thinking about it,” Pangilinan said in an interview in Manila yesterday, when asked whether his group, controlled by billionaire Anthoni Salim, could buy the 32.8 percent stake that San Miguel is selling. “It actually depends on the price.”

San Miguel President Ramon Ang said June 11 that finding a buyer for the block he valued at $3.5 billion may be difficult and that the company is willing to sell its 370 million shares in the utility, known as Meralco, in parts. By buying the stake, First Pacific would cement control of the utility, in which it already owns 48.3 percent through Beacon Electric Asset Holdings, according to data compiled by Bloomberg.

“Buying more shares is indeed very tempting for Pangilinan,” said Astro del Castillo, managing director at First Grade Holdings Inc. in Manila. “Meralco is value for money given the revenue it generates as a monopoly and the potential for growth and expansion.”

Meralco distributes power to a quarter of the Philippine population in an area that accounts for half of its gross domestic product, according to its website. The company is expanding into power generation locally and has ventures in Singapore and Nigeria.

For San Miguel, selling the stake would allow it to profit from an investment at almost four times the purchase cost and help it fund its diversification away from the food and drinks business. Its Meralco stake is worth 127.3 billion pesos ($2.9 billion), based on current prices.

Most of San Miguel’s shares in Meralco were bought at 90 pesos apiece in 2008, or 26 percent of their current worth.

Stocks Decline

“Many interested parties have inquired,” Ang said in Manila after the company’s annual meeting. “Because of the size, the shares can’t be sold easily.”

Recent declines in the Philippine stock market may pose another challenge to a sale. The Philippine Stock Exchange Index dropped as much as 4.4 percent and is headed for its lowest close since Jan. 31. It has retreated more than 14 percent from a record close on May 15.

San Miguel fell 6.3 percent to 89.05 pesos at 10:53 a.m. in Manila, the lowest since November 2010. The shares have fallen 15 percent this year against the benchmark stock index’s 8.4 percent gain. Manila Electric fell 2 percent to 338 pesos, its sixth day of declines. Financial markets were shut yesterday for Philippine independence day.

Citigroup Inc., Deutsche Bank AG, Standard Chartered Plc and UBS AG are helping with the Meralco sale process, said three people with knowledge of the matter. The deal could be the third biggest in the Philippines, data compiled by Bloomberg show.

Energy Investments

San Miguel, which started as a brewer more than a century ago, is seeking to boost revenue to $50 billion in five years. Sales climbed 30 percent to 698.9 billion pesos, or $16.2 billion, in 2012, missing its target of $20 billion. Energy accounted for 60 percent of sales, according to data compiled by Bloomberg.

San Miguel plans to buy oil and gas fields that can produce 1 million barrels a day, Ang said on March 6. The company owns most of Petron Corp., the Philippines’ largest oil refiner and its biggest electricity producer through unit SMC Global Power Holdings Corp.

San Miguel may raise at least $150 million selling 10 percent to 15 percent of SMC Global Power this year through an initial public offering, Ang said on June 11. Eventually, San Miguel may sell as much as 49 percent of the venture depending on market conditions, he said.

To contact the reporters on this story: Joel Guinto in Manila at jguinto1@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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