SMC in talks to acquire 60% of struggling Liberty Telecom

Hot on the heels of its recent big-ticket acquisitions, Southeast Asia’s largest food and beverage conglomerate San Miguel Corp. is now looking to acquire 60 percent of inactive listed firm Liberty Telecom Holdings Inc. (LTHI).

 In a mobile text message, San Miguel president Ramon Ang said talks are now ongoing between San Miguel and Liberty for the sale of a controlling stake in LTHI.  “We are in negotiations to buy 60 percent (of LTHI),” Ang said.

Ang, who was recently elected as the new chairman of Liberty, said he expects negotiations with the majority owners of the telecommunications firm to be completed soon.

Ang replaced replaced Gabriel Dee who resigned shortly after assuming the chairmanship of LTHI from businessman Raymond Moreno. LTHI, which filed for rehabilitation with the Makati Regional Trial Court in 2005 after suspending operations due to tight liquidity problems, has long been scouting for a strategic partner to revive its ailing operations.

The move is in line with San Miguel’s joint venture with Qatar Telecom to provide broadband and mobile telecom services in the Philippines.

“San Miguel believes the Filipino consumer will be the ultimate beneficiary of its intended investments since customers will now have access to a reliable service provider offering affordable high-speed wireless broadband and communication solutions,” a statement issued by San Miguel said.

LTHI’s board recently approved the issuance of P4.8 billion worth of new preferred shares to Qatar Telecom’s wi-Tribe, which is aiming to make a footprint in the  the Philippine telecommunications industry.

wi-Tribe, a joint venture between Qatar Telecom (Qtel) and A.A. Tukri Group of Companies (ATCO) of Saudi Arabia, was launched in May 2008, with Qtel holding a 78-percent stake.

The preferred shares, which will be used to pay loans obtained from wi-Tribe and/or White Dawn Solution Holdings Inc., will come from an increase in LTHI’s capital stock by P4.8 billion. 

The board approved a fixed valuation of P1.50 for the preferred shares until May 29, 2010.

Qtel owns 27.12 percent of LTHI, which holds a telecommunications license for broadband services based on Wi-Max technology, the same technology used by wi-Tribe aside from GSM.

Qatar Telecom is an integrated telecommunications player, which offers services to 16 countries with total population coverage of 550 million and a subscriber base of 55 million. It is majority-owned by the State of Qatar.

In its proposed 10-year recovery program, LTHI said it was seeking to operate a nationwide voice and data network called Wi-Max, which will provide wireless broadband service to coverage areas.  The Wi-Max is seen to contribute more than 90 percent to LTHI’s total projected revenues.

LTHI was organized in January 1994 primarily to engage in real and personal property business. It was envisioned to become the holding company for Liberty Broadcasting Network Inc. and Skyphone Logistics Inc.

Meanwhile, Moody’s Investor Service has downgraded its outlook on the local currency corporate rating of San Miguel from stable to negative due to its string of acquisitions outside its core business.

“The rating action is in response to San Miguel’s announcement that it has an option to purchase up to 50.1 percent in Petron Corp., the leading oil refining and marketing company in the Philippines,” Moody’s said.

The downgrade followed San Miguel’s acquisition of a 27-percent stake in power giant Manila Electric Co. (Meralco) for P27 billion.

“San Miguel’s new energy businesses, including Meralco and likely Petron Corp. are more cyclical than the relatively stable beverage and food businesses in which San Miguel’s has established a long and successful track record,” said Renee Lam, Moody’s vice president and senior analyst.

 “While San Miguel has strong liquidity on hand to fund its investments, visibility surrounding the company’s business risk profile has fallen, as the asset contributions from its new and riskier businesses will likely surpass Moody’s expectations, thus prompting the outlook change,” Lam pointed out.

“Further adding to the uncertainties is the company’s continued active evaluation of acquisition opportunities in various unrelated sectors and outside its core competencies, including telecommunications and mining.”

Moody’s warned that San Miguel’s combined investments in Meralco and Petron could exceed the P35 billion it had set and account for more than 10 percent of its assets.