SMC to fund Petron purchase with cash, loans

Food and drink conglomerate San Miguel Corp. said it might use a combination of debt and cash accumulated from divestments in major overseas businesses and some local units to fund its acquisition of shares in oil refining giant Petron Corp.

San Miguel inked an option agreement with London-based fund manager Ashmore Group to acquire up to 100 percent of SEA Refinery Holdings B.V.’s interest in SEA Refinery Corp. (SRC) which owns 50.1 percent of Petron. The option may be exercised by San Miguel within a period of two years from Dec. 24, 2008.

“The company will use internally-generated funds and may avail of external borrowings, if necessary, to pay for the purchase price,” San Miguel said in a disclosure to the Philippine Stock Exchange (PSE).

San Miguel has tapped Swiss investment bank UBS as its financial adviser for this transaction.

SEA BV is a company incorporated in the British Virgin Islands and is the parent company of SRC.

San Miguel also said there would be no changes in the board of directors and management of SRC, a wholly-owned unit of SEA BV.

Just recently, the government received P25.657 billion or P6.85 a share as payment for the sale of its 40-percent stake in Petron from the oil firm’s majority shareholder, Ashmore Group. This brought the Ashmore Group’s total shareholdings in Petron to 90.57 percent. The balance of a little over nine percent is held by the public.

There were talks in the market that San Miguel was the real buyer of the additional shares acquired by Ashmore from the government apparently in a bid to circumvent the tender offer rule.

Under the tender offer rule, any investor who buys at least 35 percent of a company must offer the same terms to other shareholders of the target firm.

The PSE earlier said San Miguel would have to make a tender offer to minority shareholders of Petron if it succeeds in acquiring a majority stake in the country’s largest oil refiner by sales.

San Miguel is diversifying out of its core food and beverage businesses to shield it from cyclical drops in the sector and spur stronger growth.