San Miguel's Buying Binge

The food and beverage conglomerate's buying spree is cutting into profits

Anyone who has ever visited the Philippines has probably been a customer of San Miguel Corp. Its brands, after all, include national icons such as San Miguel Pale Pilsen beer and Magnolia ice cream. The 114-year-old company has become so dominant at home that today it controls 91% of the Philippine beer market and sells 87% of the soft drinks, 60% of the processed meat, and 40% of the poultry consumed in the country. It's nice to own your home turf, of course, but now San Miguel needs to expand abroad if it wants to keep growing. "The leaps and bounds that are needed to achieve our vision can only come from acqui-sitions and regional expansion," San Miguel President Ramon S. Ang told BusinessWeek in an e-mail.

Ang is on an international shopping spree. In the past two years, San Miguel has bought five companies in four nearby countries, and last year it boosted international sales to 13% of total revenues, from 10% in 2003. It paid $97 million for Thai Amarit Brewery Ltd. and $35.5 million for food processor TTC (Vietnam) Co. in 2003. Last year it bought 51% of Berri Ltd. -- Australia's top juicemaker -- for $97.9 million.

Now, San Miguel is going after its biggest target yet. On Apr. 11 it won a bidding war for National Foods Ltd., Australia's top dairy. San Miguel needs the $1.5 billion acquisition if it is to meet a goal of $10 billion in revenues by 2007 -- more than triple last year's sales. While San Miguel has been in Australia since 2000 and last year sold $131 million worth of beer, juice, and water there, adding National's $942 million in sales will catapult it into the ranks of Australia's corporate elite.

NEW ZEALAND NEXT?

San Miguel is no stranger to international business. It started exporting beer to Shanghai, Hong Kong, and Guam in 1913, and today it sells to 40 countries. In 1948 it established a brewery in Hong Kong, where it remains the No. 1 beer brand, and today it has operations in Indonesia, Vietnam, and China.

Now San Miguel wants to get into more developed markets. The company is still shopping, and says it's eyeing food processing companies in New Zealand. If San Miguel does continue its buying binge, it will likely get a boost from its partner Kirin Brewery Co. of Japan, which has spent nearly $700 million since 2002 accumulating a 20% stake in the Philippine company.

Problem is, the shopping spree has put a damper on the company's profitability. Although San Miguel earned $144 million on sales of $3.1 billion last year -- up from profits of $131 million on $2.6 billion in revenues in 2003 -- earnings fell short of expectations and profits are likely to be flat this year. "While I agree with [San Miguel's] expansion strategy, they should stop and take stock of what they're doing," says Leo Venezuela, an analyst at ATR-Kim Eng Securities Inc. A brief pause for digestion might not be such a bad idea.

By Heinz Bulos in Manila

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