San Miguel plans US$2.7bil share sale

Stake in San Miguel Food and Beverage to be sold at steep premium

MANILA: Philippine conglomerate San Miguel Corp said it was selling a US$2.7bil stake in its food and beverage unit San Miguel Food and Beverage Inc at a rich premium, sending shares of both firms soaring to multi-year highs.

The share sale, the biggest ever secondary offering in the country, is part of the parent firm’s asset restructuring plan announced last year to inject its food and beverage assets worth 336 billion pesos (US$6.3bil) into the unit via a share swap.

San Miguel said yesterday it was seeking regulatory nod to sell up to 1.02 billion shares in the unit at up to 140 peso each, or a 75% premium to Wednesday’s close of 80 peso.

Shares of San Miguel rose 12.7% to their highest since 2011, while shares of San Miguel Food and Beverage shot up 16% to 92.85 peso – a level unseen since 2012.

With shares of the food unit trading below the indicative offer price and market uncertainty rising amid global trade tensions and rising US interest rates, some investors expect San Miguel may have to cut the offer prices.

“One hundred forty is a bit too high,” said Michael Gerard Enriquez, chief investment officer of Sun Life of Canada Philippines Inc, which owns shares of both the companies.

“Their main argument is ... most of the underlying businesses of San Miguel Food and Beverage are the market leaders and they are still growing.”

But an indicative offer that values the unit’s shares at 40 times price-to-earnings ratio shows “there might be some adjustments”, Enriquez added.

San Miguel plans to use proceeds from the share sale to invest in its business, but it did not provide details.

At the indicated price, gross proceeds from the sale are expected to come in at as much as 142.8 billion pesos.

The maker of San Miguel Pale Pilsen and Red Horse beer is Philippines’ biggest brewer and has previously outlined plans to invest at least US$1bil in the next two years to build 10 breweries to tap into strong demand in key markets.

“Our principal long-term goal is to further strengthen and solidify our position as the leading food and beverage company in the Philippines,” the unit said in a filing.

The conglomerate is pursuing an aggressive expansion plan, that involves venturing into infrastructure, mining, petroleum and power generation to boost revenues.

It has earmarked up to 700 billion pesos for expansion of its businesses between 2015 to 2022.

San Miguel Food and Beverage has hired JPMorgan, UBS, Deutsche Bank, BDO Capital and BPI Capital for the share sale, which is expected to increase the company’s public float to above 10% from the current 4.12%.

Final pricing is set for Oct 19, followed by the offer period on Oct 23-29, the company said in its filing. — Reuters

Most of the underlying businesses of San Miguel Food and Beverage are the market leaders and they are still growing.