Pure Foods mulls new markets for acquisitions

Posted at 11/14/2012 8:03 AM

MANILA, Philippines - Local food giant San Miguel Pure Foods Co. Inc. (SMPF) is on the hunt for major acquisitions that offer it entry into new segments of the market and may sell its stake in Manila Electric Co. to beef up its war chest, a top company official said.

In a briefing, SMPF president Francisco Alejo said the company intends to further grow its business by entering new product categories. “We continue to source potential acquisition targets. We’re looking at new high-margin segments. We just can’t tell you now because we don’t want our competitors to know our moves.”

At the same time, Maybank ATR managing director Roberto Benares said SMPF had indicated openness to divesting its 5.2 percent equity interest in Meralco should it need funding for potential acquisitions.

Maybank ATR is one of the book owners in SMPF’s secondary shares offer.

“They said they might give up their stake in Meralco in case something interesting comes up that would require a huge capital investment,” Benares said.

SMPF acquired 59.09 million Meralco shares from parent firm San Miguel Corp. in August 2011 at P220 per share or a total cost of P13 billion.

In 2008, San Miguel bought 27 percent of Meralco from state pension fund Government Service Insurance System (GSIS).

SMPF launched Monday its roadshow for a secondary offering of shares worth between P6 billion and P7.5 billion. The shares, owned by San Miguel, will be sold at P240 to P300 each, less than half of the stock’s current price of P700.

The sale is aimed at boosting SMPF’s public float to 15 percent – 17.5 percent from the current 0.08 percent and thus meet a yearend deadline by the Philippine Stock Exchange to comply with the 10 percent minimum public float rule.

The roadshow will run until Nov. 19. Pricing of the shares will also be known Monday next week.

The shares to be sold comprise 15 percent of the company. In case of strong demand, SMPF has set aside up to 15 percent of the offer size for the greenshoe option.

Alejo said the company has set a capital spending program of P6 billion this year and next, most of which will go to the ongoing construction of the Mabini grains terminal in Batangas, targeted to be operational in the third quarter of 2013. The terminal is designed to accommodate larger vessels which would reduce freight costs.

SMPF also intends to expand existing production facilities for value-added meats and dairy, spreads and oils businesses as well undertake major repairs of existing facilities.

The company expects to fund its capital expenditures with internally generated cash flow and third-party debt and/or equity financing.

SMPF owns popular brand names Magnolia, (a leading player in chicken, butter and milk products), Monterey (fresh and marinated meats), Purefoods (refrigerated processed meats and canned meats), B-Meg (animal feeds), Dari Crème and Star (margarine).

It holds leadership in multiple segments – non-refrigerated and refrigerated margarine (97 percent), nuggets (79 percent), hotdogs (64 percent), fresh meats (42 percent), commercial feeds (41 percent), and butter (38 percent).

The company reported a slight drop in profit in the first nine months to P2.945 billion, from P2.96 billion last year, as revenues declined 7.3 percent to P69.35 billion. Increased financing costs likewise put a dent on the company’s bottom line.