SMC, European firm eye Purefoods

The Ayala group is selling its 93-percent controlling stake in Purefoods Corp. and is now in the final stages of talks with food and beverage giant San Miguel Corp. (SMC) and European equity fund management company, CVC, to raise funds for the expansion program of subsidiary Globe Telecom.

While the Ayala and Purefoods management prefer CVC’s offer, the final determinant will be the price. "If SMC bids higher, then they will sell it to SMC," highly placed sources told The STAR yesterday. The offers range from P7 billion to P10 billion.

Globe Telecom, which is battling PLDT-owned Smart Communications for supremacy in the highly competitive mobile phone business, is earmarking at least P10 billion for its expansion program this year. Smart, on the other hand, is setting aside P20 billion, part of which will be financed through additional capital infusion by parent PLDT and partly through loans and internally generated funds.

However, since Purefoods is a very profitable company of the Ayala group, the latter is not willing to negotiate on the price. Before President Estrada was removed from office, interest rates were so high that borrowing money to finance Globe’s expansion plan was out of the question. But now that interest rates have stabilized, the Ayala group is not discounting the possibility of borrowing if CVC and SMC are not prepared to meet the price it has set for Purefoods.

"Prior to EDSA II, we expected the sale to be finalized this month. But now that interest rates are better, the negotiations may probably take a few more months since the Ayala group can borrow funds instead," sources said.

The sources revealed that as of this writing, SMC personnel are conducting due diligence studies on the books and operations of Purefoods. CVC, which is 40-percent owned by Citibank, has finished its own pre-due diligence of the poultry, processed meat, and flour company in November of last year.

CVC, as part of its overall strategy, wants the management of the company it is acquiring to retain part ownership. It leaves the management job to the existing management – in this case under Purefoods president Renato Montemayor – and would rather just be a fund provider. "The Ayala group is also concerned about the welfare of its employees and wants as much as possible very little human resources displacement," the sources said.

SMC’s operations, on the one hand, will have so many redundancies with those of Purefoods, since the two companies are both in the poultry, processed meat, and animal feeds business.

Another source, however, said that CVC’s offer has to be looked at seriously since it carries certain conditions, one of which is that a part of the money derived from the sale will have to be placed in escrow and will be released only upon meeting certain conditions set by CVC.

"And being an equity fund manager, they may not be here for the long run and in a few years’ time will sell its stake in Purefoods to recover its money at a profit," the source said.

It was learned that CVC has also expressed interest in acquiring Swift Foods Inc., a subsidiary of RFM Corp.

Meanwhile, SMC is dead set on acquiring Purefoods, considering the latter’s synergy with its existing business. This, the sources said, will consolidate SMC’s position in the food, beverage, and poultry industry and will make it the undisputed leader.

SMC management, led by chairman Eduardo Cojuangco Jr., is actively scouting for companies to buy. It has reacquired the local unit of Coca-Cola for P1.24 billion to further strengthen its leadership position in the beverage industry. It has also bought juice leader Sugarland and Australian beermaker J. Boag & Son.

SMC ended 2000 with a net income of P7.5 billion, or 25 percent more than its 1999 income of P6.01 billion.

Purefoods is currently the market leader in the processed meat business, accounting for 49 percent of the market and is also a leader in the flour milling business. It is number four in the poultry business, with Swift Foods, Vitarich, and San Miguel Foods holding the top spots.

Aside from CVC and San Miguel, a Texas-based fund management company – New Bridge which is majority owned by Northwest Airlines – also submitted its bid for Purefoods. New Bridge, like CVC, is scouting worldwide for investment opportunities and just recently bought a packaging company in the Philippines, Alaska Corp. also tried to bid for Purefoods, but has backed out of the race.

US-based Hormel Corp., which owns 40 percent of Purefoods-Hormel Inc., a company that was spun-off to handle the local Hormel processed meat brand, earlier expressed interest in buying Purefoods. Whoever buys Purefoods will have a 60-percent stake in Purefoods-Hormel Inc.