SMC firms up majority stake in Petron

MANILA, Philippines - Diversifying conglomerate San Miguel Corp. (SMC) is firming up ownership of a majority 50.1-percent stake in Petron Corp., sending the share price of the country’s biggest oil refiner to a three-year high.

In a disclosure to the Philippine Stock Exchange, SMC said it plans to exercise by Friday its option to acquire 40 percent of Sea Refinery Corp. (SRC), which holds 50.1 percent of Petron. SRC is a unit of London-based Ashmore Group, a global investment management company with an asset portfolio worth $36.5 billion.

In December 2008, SMC and another Ashmore subsidiary, Sea Refinery Holdings BV, entered into an option agreement granting SMC the option to fully acquire SRC.

SMC paid the Ashmore Group $10 million for the exclusive option to buy the Petron shares within a two-year period, which ends on Dec. 24, 2010.

News of SMC’s early exercise of the option agreement sent Petron’s stocks 10 percent higher to close at P6.60 yesterday – its highest since November 2007. SMC president Ramon Ang, in a telephone interview, said they will conduct a tender offer for the remaining 9.4 percent Petron shares owned by small investors to bring the diversifying conglomerate’s total interest to a controlling 60 percent in the oil refiner.

The SMC official said the tender offer would be made at an “appropriate date” for the common shares of Petron held by public investors at P6.85 each, the same price it is paying for SRC’s shares.

The Ashmore Group acquired 90.57 percent of Petron from the 40 percent stake each of Saudi Aramco and Philippine National Oil Co. (PNOC) and 10.57 percent from the market. Petron, which was listed in 1995 through a public offering of 20 percent of its stocks, has thinned down to a free float of just 9.4 percent.

Within the Ashmore Group, SRC owns 50.1 percent of Petron while 40.47 percent is owned by SEA BV. Ashmore, through SEA BV, will maintain a substantial stake in the country’s largest oil company.

“What we are doing right now is to have our tender offer in compliance with the PSE ruling. This exercise will enable us to buy all shares of the public which is nine percent. We are now readying all documents,” Ang said.

 “Once completed, we will end up with 60 percent of Petron if we will be able to buy all the nine percent held by the public.  We already bought 51 percent.”

Analysts said San Miguel’s decision to buy the Petron stake indicates how confident the conglomerate is of Petron’s prospects.

The oil refiner swung to a net profit of P4.24 billion in 2009 from a record net loss of P3.98 billion in 2008 due to the more stable prices of crude oil and refined products.

Last month, Ang had noted that several of the oil company’s major projects, including the expansion of its retail network, will help drive future earnings.

SMC, which dominates the Philippine food and beverage industry, is diversifying into heavy industries to improve shareholder return and increase profit. The company has noted that the industry sectors it is moving into, such as infrastructure development, oil refining, and power generation yield double-digit returns compared with single-digit returns from its food and beverage businesses. – with AP Dow Jones