Pure Foods sale fails on price, control issues

(Updated 2:40 p.m. Aug. 23) It could have been one of the biggest Philippine corporate deals this year, valued at $1 billion to $1.8 billion by analysts. But the much-anticipated sale of San Miguel Corp.'s stake in unit San Miguel Pure Foods Co. Inc., the maker of Pure Foods hotdog, ham, and sausages, failed to materialize last week after the conglomerate's directors decided to keep its majority interest in its subsidiary. "The final bidders had sought 100-percent ownership," said San Miguel president Ramon Ang in a statement. "At this time, our board has decided that all that should be currently under offer by San Miguel is the sale of a minority stake in our food group." While San Miguel refused to identify the final bidders of Pure Foods, sources said the company was negotiating with two bidders — Universal Robina Corp. (URC) of business tycoon John Gokongwei and the tandem of Joselito "Butch" Campos Jr. of Del Monte Pacific Ltd. and Ricardo Po of the Century Pacific Group of Co. Campos also owns the closely-held United Laboratories Inc., the country's largest pharmaceutical and health care company. Century Pacific, on the other hand, makes Century Tuna, the most popular brand of canned tuna in the Philippine market. The talks between the Campos-Po consortium and San Miguel's board reportedly reached an advanced stage. But the issue of control of Pure Foods between both sides, apart from the price, became contentious that resulted in a deadlock. The Campos-Po group reportedly found the offer price "too high". Purefoods/B-Meg Derby Ace Developments on the sale of Pure Foods was also having an impact on the basketball franchise, since Purefoods – spelled as such – under the team name B-Meg Derby Ace Llamados, is one of the teams of San Miguel Corp. in the Philippine Basketball Association (PBA). There were initial reports that San Miguel would retain control of the Purefoods ball club, as the supposed sale would not include the basketball franchise. San Miguel insiders, who asked not to be named as they were not authorized to speak for the company on the matter, said that the conglomerate was seriously considering Petron, the oil refiner where San Miguel has a controlling stake, to take over the Purefoods franchise. The transfer of Purefoods franchise to Petron could be a good marketing strategy for the oil giant, San Miguel officials said. The Purefoods team about two weeks ago notified the PBA commissioner’s office that there would a change in name from B-Meg Derby Ace to Petron. In response, Commissioner Renauld "Sonny" Barrios ordered his staff to pull out the sports merchandise of Purefoods/B-Meg Derby Ace from various retail outlets. Barrios retracted his order after two days when the word was out that negotiations for the sale bogged down. With the decision of the board of directors of San Miguel to sell only 49 percent of the company’s interest in the hotdog unit, the conglomerate will now retain the name B-Meg Derby Ace Llamados for the next PBA conference. Purefoods is a member of the PBA since 1988. Meanwhile, URC failed to pursue an aggressive stance to buy Pure Foods — which owns such brands as Pure Foods, Magnolia, Monterey, San Mig Coffee, and B-Meg — because it also found the selling price too high. URC, a known rival of Pure Foods, long wanted to put up its own hotdog brand to get a piece of the multibillion-peso hotdog industry. The sale also attracted the Aboitiz group and two foreign funds, the Luxembourg-based CVC Capital Partners and the Washington, DC-based Carlyle Group. Share sale San Miguel was supposed to use the proceeds of the sale of its Pure Foods stake to finance its own aggressive diversification to high-growth industries, such as power, mining, oil refining, telecommunications, and infrastructure. "Selling a portion of its existing core businesses is one way San Miguel is raising funds to support its ongoing diversification into heavy industry," San Miguel said. As the talks with the Campos-Po tandem ended in a deadlock, analysts pointed out that San Miguel may have to resort to a share sale or a follow on offering. Pure Foods earlier said it might raise as much as P5 billion from the sale of 75 million shares this year. The company has tapped JP Morgan as financial adviser for the share sale. But this is a different story as Pure Foods plans to use the money from the sale of its shares to pay parent San Miguel for acquiring food-related brands and intellectual property rights as well as the purchase of the Vietnam food business. Under the share sale, Pure Foods would sell 75 million shares to San Miguel, third parties, or via market placement. The shares would be culled from an increase in the company's authorized capital stock to P2.46 billion from P1.4 billion. The share sale would widen Pure Foods' public float to between 24 percent and 31 percent from the current 1 percent. San Miguel buys Pure Foods San Miguel acquired Pure Foods in May 2001, paying Ayala Corp. $138 million for 94 percent of the company and integrating its operations with the San Miguel Food Group. Pure Foods operates it businesses through subsidiaries, such as San Miguel Foods Inc., San Miguel Mills Inc., The Pure Foods-Hormel Company Inc., Magnolia Inc., PT San Miguel Pure Foods Indonesia, San Miguel Super Coffeemix Co. Inc., Monterey Foods Corp., Great Food Solutions, and RealSnacks Manufacturing. Corp. It has established partnerships with international companies such as Hormel Foods International Corp. of the United States, Super Coffeemix Manufacturing of Singapore, and La Salle Financials of Indonesia to access the latest technologies and expertise in food manufacturing. In 2009, Pure Foods reported a net income of P2.7 billion from P149 million in 2008. Revenues that year hit an all-time high of P75 billion. This year, the company registered a net income of P1.8 billion in the first six months from P540.6 million a year earlier. —With Jesse Edep/VS, GMANews.TV