San Miguel Has $6.6 Billion Bids for Beer, Gin: Southeast Asia

Ramon Ang, the billionaire chief of San Miguel Corp., said he’s received about $6.6 billion of offers for stakes in its brewery and gin units that will be considered should it need cash for an energy acquisition.

Several bids of as much as $6 billion were made for 51 percent of San Miguel Brewery Inc., while Ginebra San Miguel Inc. has fetched proposals of $600 million, Ang said in an interview in Manila. The parent company is studying the purchase of an energy company with $10 billion in sales, he said, declining to identify it.

San Miguel, the largest Philippine company, is investing more on oil, power and infrastructure than on consumer products. The transformation, begun by Ang five years ago and destined to take it beyond the food and drinks businesses, is made easier by the nation’s economic growth that’s among the fastest in Asia. The next move depends more on choosing the right target.

“For me, $6 billion is a good amount, but I’m not the only person that can decide on that,” Ang, the company’s president, said in his office. “The board can take the offers seriously, if we’re sure whatever we’re going to buy will happen.”

San Miguel, which started making beer eight years before the Philippines declared independence from Spain in 1898, has boosted revenue fivefold to $20 billion in five years. It has built up a cash pile of $4 billion for expansion and $20 billion of assets that can be sold as necessary to meet obligations, Ang said.

Japan’s Kirin Holdings Co., which holds about 48 percent of the San Miguel Brewery unit, hasn’t offered to buy the remaining stake, Ang said.

Shares Decline

San Miguel shares fell 3.1 percent to 55.80 pesos in Manila, the lowest close since July 2009. The stock declined 33 percent last year, its biggest annual decline based on records dating back to 1991.

“Some investors are disturbed by the report,” Astro del Castillo, managing director at Manila-based First Grade Holdings Inc., said by phone today. “San Miguel is open to selling a cash-rich business to fund diversification while admitting return from power ventures will decline. It’s feeding uncertainty over San Miguel’s direction.”

San Miguel’s market capitalization of just about $3 billion isn’t a cause for concern, Ang said.

“If I really want the share price to fly, all I need to do is just buy back” stock, he said. “The price of San Miguel is low, but if you are not selling like me, I should be very happy because I will have more opportunity to buy. Shareholders who have no patience can sell and buy something else. It’s a free country.”

Power Plants

This quarter, San Miguel’s electricity unit SMC Global Power Holdings Corp. will sell a 49 percent stake to raise at least $1 billion in an initial share sale, he said. Three large investors have offered to buy part of that stake in SMC Global, which accounts for a quarter of the Philippines’ generation capacity, he said.

San Miguel plans to invest $3.2 billion to build power plants with a combined capacity of 2,100 megawatts and of that, 900 megawatts should come on stream by 2015, Ang said. Return in power investments may drop to 10 percent from 25 percent as San Miguel keeps on building generating plants, he said.

“We’ll overbuild power generation for the love of the country,” he said. “The Philippines needs stable, reliable and cheaper power to support economic growth.”

Economic Growth

Gross domestic product rose 6.5 percent in the three months through December compared with 6.9 percent in the previous quarter, the government reported today, beating the 6 percent median estimate of 21 economists in a Bloomberg survey. The economy expanded 7.2 percent last year after gaining 6.8 percent in 2012, the fastest two-year pace since 1954-1955, data compiled by Bloomberg show.

The sale of a 27 percent stake in Manila Electric Co. in October lifted San Miguel’s 2013 profit to at least 39 billion pesos ($863 million) despite the local currency’s 7.6 percent decline, Ang said. The earnings could be “difficult to match” in 2014, he said. Profit in the first nine months of 2013 fell 60 percent to 7.5 billion pesos on foreign-exchange losses.

The peso has lost about 2 percent this year, the third-worst performance in the region. It touched 45.443 per dollar this week, the weakest level since 2010.

Most Indebted

San Miguel currently has long-term and short-term debt of $14.8 billion, according to data compiled by Bloomberg, making the company the nation’s most-indebted. San Miguel and its units have 60.8 billion pesos of debt and interest falling due this year, of which 42 percent are in dollars. Cash and near cash items total $4.12 billion.

San Miguel Brewery, which controls 90 percent of the local market, has 22.4 billion pesos of bonds due in April that it will likely refinance with cheaper and possibly longer-term debt, Chief Finance Officer Ferdinand Constantino said yesterday. The company started hedging some of its longer-term foreign-currency debt after the peso last year posted its biggest loss since 2008, he said.

“With interest rates on the rise and the peso’s continued weakness against the dollar, San Miguel may have to start refinancing its debt now,” Jomar Lacson, research head at brokerage Campos Lanuza & Co., said by phone. “Once capital markets start closing, the company may be forced to sell its assets at a discount.”

Beverage Deals

A month into 2014, big beverage companies have already spent almost three times as much buying competitors as they did all of last year. As Japanese companies such as Suntory Holdings Ltd. seek growth overseas to combat an aging population at home, European drinks companies target Asia to lock down control in a region where both the beer and spirits markets are still expanding.

Anheuser-Busch InBev NV said last week it will pay $5.8 billion for South Korea’s Oriental Brewery Co. Ltd. Suntory, the closely held Japanese whiskey and beer maker, said Jan. 13 it agreed to buy Beam Inc. for $16 billion including debt to gain brands such as Maker’s Mark whiskey and create the world’s third-largest premium spirits company. The purchases leave room for more beverage deals in Asia, Africa and Americas, Fitch Ratings said in a Jan. 23 report. The most likely acquisition targets include San Miguel Brewery, it said.

Beyond Food

The Philippines’ biggest electricity producer and owner of Petron Corp., the nation’s largest oil company, has announced 41 purchases worth $7.8 billion since 2000, about three-fourths of which were made since 2008 when it started to expand out of the food and brewery business, according to data compiled by Bloomberg.

Helping fund its expansion were asset sales since 2007 worth about $7.3 billion, the largest of which was that same year’s sale of its Australian dairy and fruit-juice unit National Foods to Kirin for $2.6 billion. Last year, the company sold its stake in Manila Electric, the nation’s largest power retailer, for $1.65 billion.

San Miguel isn’t in talks to buy a stake in broadcaster GMA Network Inc., Ang said, declining to elaborate. Ang offered to buy at least 30 percent of GMA, the Philippine Daily Inquirer reported on Jan. 24, citing two people it didn’t name.

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