San Miguel pursues regional expansion program

Food and beverage giant San Miguel Corp. (SMC) is pursuing its regional expansion program in an effort to increase its market share outside of the saturated domestic market it clearly dominates and reignite growth within the group.

SMC is still shopping around and says it remains interested in making a bid for New Zealand Dairy Foods and Singapore-listed fruit and juice producer Del Monte Pacific Ltd.

SMC president and chief operating officer Ramon S. Ang said the 114-year-old company is seeking new markets after dominating Philippine store shelves with its brands of beer, liquor, softdrinks, processed food and poultry.

The conglomerate currently controls 91 percent of the local beer market and sells 87 percent of the soft drinks, 60 percent of the processed meat, and 40 percent of the poultry consumed in the country.

Ang said SMC needs to expand abroad if it wants to keep growing and achieve its goal of being among Asia’s top ten largest food and beverage companies by 2007. The conglomerate raised P18 billion from a recent stock rights offering and can raise an additional $2 billion through the debt market to fund planned acquisitions, he said.

"We’re now looking into the possibility of acquiring New Zealand Dairy and Del Monte. Del Monte was offered to us again, so far our offer is still the best, maybe that is why they came back to us," Ang said.

Italian food maker Cirio Finanziara S.P.A. is selling its 40-percent stake in Del Monte Pacific to allow it to repay debt. Apart from SMC, taipan Lucio Tan has signified interest in buying Cirio’s stake worth about $175 million. Tan reportedly put in the best bid, but eventually withdrew his offer for still unknown reasons.

Tan was reportedly ready to pay $180 to $200 million for Cirio’s stake in Del Monte Pacific, the world’s second-largest producer of processed pineapples.

The Lorenzo family, which owns about 20 percent of Del Monte, has said it will exercise the right to match the best offer for Cirio’s stake. Other parties that have reportedly expressed interest in Cirio’s stake are Japan’s Sumitomo Corp., US-based HJ Heinz Co., and Fresh Del Monte Produce Inc.

As for Dairy Foods, Ang said SMC has yet to make a formal offer for the $700-million company. New Zealand Dairy Foods is a consumer dairy business owned by New Zealand businessman Graeme Hart who has been soliciting offers in view of an imminent shake-up in the Australian dairy sector.

Dairy Foods owns consumer brands Anchor, Fresh’n’fruity and Fernleaf, It also processes 50 percent of New Zealand’s milk and has respective 25 percent shares in the Australian cheese and yoghurt markets.

Apart from SMC, Dairy Foods has attracted interest from four other potential investors which include European dairy giants Danone and Nestle.

As the new owner of National Foods, San Miguel could face a New Zealand Commerce Commission roadblock in its bid to buy Dairy Foods, analysts said. In 2002, the commission rejected a bid by National Foods to buy Dairy Foods on the grounds it would significantly lessen competition in the yoghurt and dairy dessert market. National Foods owns the license to the Yoplait yoghurt brand.

SMC has not yet approached the commission seeking clearance or clarification about the viability of the purchase.

SMC chairman Eduardo Cojuangco Jr. said the company’s continued strong growth can only come from acquisitions and its regional expansion program. "If we stay in the Philippines, the most we can expect is two percent growth (annually)," he said, adding that by going regional, the company could sustain growth at the same level as in recent years.

Regional markets such as South China, Indonesia, Vietnam, Thailand, Malaysia and Australia represent huge growth opportunities for SMC, Cojuangco said.

Cojuangco said his firm’s impending acquisition of National Foods would make dairy products account for over 21 per cent of SMC’s total revenue with the food sector as ‘the biggest contributor to the SMC group revenue’, which had formerly been dominated by beer.

Analysts believe that SMC‚s position is now so dominant that there is clearly little room for growth. This fact has been reflected in the company’s recent financial results, which showed that the company’s main growth lay outside of the domestic market.

SMC posted slower growth for the first quarter this year as net profit rose by only 2.3 percent due to higher financing charges, taxes and raw material and fuel costs. Net income amounted to P1.78 billion compared with P1.74 billion in the same period last year.

The company has been on an expansion binge outside the Philippines in its bid to become a major player in the Asian Pacific region.

In 2004, SMC bought into King’s Creameries, a Singapore-registered ice cream manufacturer, acquired a brewery in Thailand, packaging companies in Malaysia and put up a joint venture with a Thai spirits manufacturer.

Currently, SMC has over 100 major manufacturing facilities in the Philippines, China, Hong Kong, Indonesia, Vietnam, and Australia and its products are exported to over 40 countries throughout the world.