San Miguel to buy stake in Manila Electric Co.

(Update) MANILA, Philippines - San Miguel Corp. (SMC), the Philippines’ largest food and beverage conglomerate, approved a plan to acquire a significant stake in Manila Electric Co. (Meralco), the country’s biggest electricity distributor. The announcement, disclosed at the Philippine Stock Exchange (PSE) late Monday afternoon, allows the food conglomerate to buy the 27 percent stake held by the Government Service Insurance System (GSIS) for P90 apiece, twice the current prices of Meralco shares. Shares of Meralco fell P3.50 to P44.50 during Monday’s trading at the PSE. Representing approximately 301 million shares, the stake is worth more than P27 billion, resulting in some P12 billion profit for the GSIS, Winston Garcia told GMANews.TV in an email message. “The amount will be payable in three years," the conglomerate said in its disclosure. The move indicates its solid commitment to invest in high-growth industries, including mining, power, infrastructure, water, other utilities, and property, the company said. Management also secured authorization from the board of directors “to initiate talks with the Ashmore Group for a possible stake in Petron Corporation, and with Indonesia’s PT Bakrie and Brothers, for an alliance for its PT Bumi Resources operations," the company said. PT Bumi Resources Tbk is an Indonesian-based natural resource company engaged in mining, oil, gas and energy-related activities. Through its various subsidiaries, it owns the world’s largest export coal mine, the company said. Ashmore is a UK-based fund that bought a significant stake in Petron, the Philippines’ largest oil company. Next: Acquisition will help San Miguel maximize shareholder value, boost stock prices Acquisition will help San Miguel maximize shareholder value, boost stock prices The acquisition is “not expensive," Jomar Lacson, an analyst at Campos, Lanuza, and Co. Inc. said. “In terms of valuation, it’s a long term investment for San Miguel since [the Meralco shares were bought] at a discount, compared to the fair value of P110 per share." This was echoed by Astro del Castillo, managing director at First Grade Holdings. The deal “is hard to refuse," he said. Venturing into other businesses will also help San Miguel “fulfill its real role as a conglomerate, including boosting the company’s return on equity," Lacson said. Defined as the profit generated from shareholders’ investments, the ROE of San Miguel currently stands at single digits, Lacson said. The move will help produce a better ROE, something that “management cannot do through the food business alone," Lacson added. Lacson also noted the potential of San Miguel’s share prices to rise. “The question right now would be whether investors would have the guts right now to buy the company’s share," he said. While he recognized the current fear in the local stock exchange—which saw values erased by P253 billion during Monday’s session—“the fact that San Miguel is now moving to acquire more investments signal to investors to be more optimistic about the company," Lacson said. San Miguel Corp.’s “A" shares—traded for local investors—fell P1.00 to P42.00 during Monday’s trading at the PSE. “B" shares—sold to foreigners—declined P2.00 to P42.00. Next: Pension fund earns P12 billion from sale of Meralco shares Pension fund earns P12 billion from sale of Meralco shares The GSIS agreed to sell its stake to San Miguel because “it was the best deal [the pension fund] could get," GSIS President and General Manager Winston Garcia said in an email message. Two other companies offered to buy Meralco’s stake but San Miguel made the best offer, Garcia added. Moreover, the transaction was approved because it allowed the pension fund and its members to make money, Garcia said. Although the pension fund also expressed interest in acquiring Philamlife, the Philippines’ largest insurer, Garcia said that “there are other companies which are selling at less than their book value." He refused to identify these companies. “We will look for better investment opportunities where we can make strategic investments," he said. In a separate statement, the state-led pension fund said that “the GSIS managed to do something many thought would be impossible—turn around a seemingly losing proposition into a P12.7-billion profit." “Bucking all odds and bucking global market trends, the GSIS managed to sell its entire 300,963,189 shares in Meralco, or 27% of the company's total outstanding shares, to San Miguel Corporation to the tune of P90 per share—roughly P30 billion, including interest," the statement said. - Robert JA Basilio Jr with Anna Barbara L. Lorenzo, GMANews.TV