SMC close to buying majority stake in Petron

Southeast Asia’s largest food and beverage conglomerate San Miguel Corp. is set to cap the year with large-ticket acquisitions of new businesses in a span of just under two months.

Following its purchase of a 27-percent interest in power utility giant Manila Electric Co. (Meralco), San Miguel is closing in on the purchase of a majority stake in Petron Corp., the country’s biggest oil refiner, and its takeover of struggling Liberty Telecommunications Inc.

In a disclosure to the Philippine Stock Exchange yesterday, San Miguel said it is “in the final stages of its negotiations with Ashmore for an option to purchase up to 50.1 percent of the latter’s stake in Petron.”

London-based fund manager Ashmore, through unit SEA Refinery Corp., now owns 90.57 percent of Petron after it acquired the government’s remaining 40-percent stake for $541 million or P6.85 each share, earlier this month.

SEA Refinery paid in full yesterday the P25.87-billion acquisition cost for the 40- percent stake owned by Philippine National Oil Co. (PNOC) in Petron.

PNOC late last week signed a share purchase agreement which sealed the sale of the National Government’s remaining 3.75 billion shares in Petron to SEA Refinery.

Meanwhile, a total 4.696 billion Petron shares were crossed at the stock exchange since Monday at P6.85 apiece — the same price at which Ashmore bought additional Petron shares from the government.

Some stock market sources said Ashmore was buying the shares on behalf of San Miguel in a move to go around with the Securities and Exchange Commission’s tender offer rule, which requires an entity that acquired 35 percent of a listed company to buy the remaining shareholdings of minority investors at the same price.

The rule aims to protect minority owners who may be left out in the deal if the buyer extends the offer only to strategic partners or majority owners of a company.

“There are speculations that San Miguel is planning to skirt the tender offer rule since doing such would be costly. They might do what Holcim tried to do to skirt the tender offer rule. Any change in ownership should trigger a mandatory tender offer,” an analyst said.

The same analyst said San Miguel was willing to comply with the tender offer rule if the shares would be sold at a lower price.

San Miguel is on acquisition mode with further plans to acquire an Indonesian coal mining firm and 60 percent of Liberty.

San Miguel is looking to sell $1 billion worth of preferred shares to fund its large-scale acquisitions. It also has a cash hoard of around $2 to $3 billion, having sold its Australian assets — Australian dairy maker National Foods - for $2.6 billion, a stake in San Miguel Brewery and its 35 percent interest in its packaging unit.

San Miguel raised $130 million from the sale of some of its shareholdings in its packaging unit to Japan’s Nihon Yamamura Glass.

It also sold its 29.4 percent stake in unlisted property firm KSA Realty for P1.8 billion to Shang Properties Inc.

The move to go into heavy industries like power and infrastructure has been criticized by some analysts who say San Miguel, which dominates the home market for beer, poultry and processed meats, does not have the expertise to run such businesses.

San Miguel president Ramon Ang, however, thinks otherwise. “Meralco and Petron are good companies and it’s a good opportunity to buy,” he said.

In 2007, San Miguel gained stockholder approval to be able to enter these industries.

San Miguel, founded as a brewery in 1890, is restructuring its core operations and diversifying into power, mining and real estate as it seeks to reduce reliance on a maturing local market for beer, dairy, processed food, grains and poultry.

Meanwhile, PNOC president Antonio Cailao said the government got paid in record time, and “we will also remit to the government in record time.”

“Our sale of our remaining shares in Petron has not ended our role in the oil refining and marketing industry.”

Cailao said they are currently exploring talks for the possible creation of a refining firm.

“Several local and foreign groups have approached PNOC, expressing interest in partnering with us to create the next oil refining and marketing company, the next crown jewel, the next Petron. But we are still studying the matter closely and evaluating our options.

“When Petron was first privatized in 1994, the Shareholder’s Purchase Agreement (SPA) with Aramco (as 40 percent owner) stipulated a ‘non-compete clause’ which disallowed PNOC from establishing a refinery and gasoline stations throughout the country,” he said.

He noted that since then and until the time of this transaction, this downstream industry was dominated and almost monopolized by foreign players.

“In other words, in our own country and at a critical time when fuel security is an utmost concern, PNOC cannot enter, much less participate in this important and critical downstream industry. But last May this year when PNOC allowed the sale of Aramco’s 40 percent share to Ashmore, we did so only on the condition that the ‘non-compete clause’ be deleted from the SPA. This fact has not escaped the attention of very financially-capable investors and companies,” Cailao said.