SMC in talks with RFM to buy Cosmos

Food and beverage giant San Miguel Corp. confirmed yesterday that it was in discussions with the Concepcion’s RFM Corp., for the acquisition of its softdrink unit Cosmos Bottling Corp.

In separate letters to the Philippine Stock Exchange, both SMC and RFM reiterated talks are ongoing but that "no agreements have been reached, whether as to price, structure or other details."

The disclosure was prompted by market rumors that the two companies had agreed in principle last Friday to the sale of RFM’s almost 85-persent stake in Cosmos to SMC for P5.65 per share or P14.5 billion.

At the stock market, share of both RFM and Cosmos remained on the most active list for the third straight session as their prices slightly rose. RFM closed two centavos higher to P2.08 while Cosmos edged 10 centavos more to P4.95.

In contrast, the stock prices of SMC went the opposite direction. SMC "A" shares slid 50 centavos to P41.50 while its "B" shares were unchanged at P47.50.

Should the buy-out deal push through, Cosmos will be the third major acquisition for SMC this year following similar agreements with food processor Pure Foods Corp. and Coca-Cola’s local bottling unit. In March, SMC re-acquired majority control of Coca-Cola Bottlers Philippines Inc. for $1.24 billion; last May, the Cojuangco-led conglomerate bought the Ayala’s 92-percent stake in Pure Foods for P8 billion.

On the other hand, the sale of Cosmos is seen as a boost to RFM’s financial capability as it would enable the Concepcion conglomerate to raise more cash to pay off its debts.

Earlier, RFM and its wholly owned subsidiary, RFM Capital, said they are ready to fully meet their obligations to holders of the $65-million 10-year bonds issued in May 1996.

The bond issue was a major headache for RFM as its net earnings position was jeopardized in the past two years due to heavy provisioning for foreign exchange losses as the peso-dollar rate deteriorated heavily.

Although the bonds will mature in 2006, among the terms in the bond float is the option for holders to redeem their bonds last May 30, 2001 at a redemption price equal to 128.71 percent of the principal amount.

RFM has raised $38 million from the recent sale of its shares in Consumer Bank, Psi Technologies and its tuna brand Blue Bay to settle about 68 percent of its outstanding bond obligation on $56 million – a reduced amount as a result of bonds buy-back and refinancing arrangements.

RFM chief financial officer Meldin Roy said the balance of $18 million needed to settle the bond claims "should be a very manageable amount that will be mainly sourced from operating cash flows."

The sale of Cosmos came as a surprise to most market watchers since it is one of the most aggressively performing units in the RFM family, along with ice cream and juice business Selecta Dairy Products and Swift Foods for processed foods.

The Cosmos line is bannered by Pop Cola, one of the leading softdrink brands in the country, along with Coca Cola and Pepsi whose parent company Pepsico was also rumored to be actively pursuing the acquisition of Cosmos.

In an earlier statement, RFM said it was intent on "pursuing its vision of becoming a leading player in the refreshments sector, and our softdrinks company, Cosmos, will definitely play a big role in our portfolio."

However, RFM said given the outstanding performance of Cosmos, many financial and strategic investors have expressed interest in the company.