E-Malt.com News article: Japan & Philippines: San Miguel in talks to sell a stake in National Foods to Kirin

Southeast Asia's largest food and beverage group, San Miguel, is in talks to sell a stake in Australia's National Foods Group, its biggest overseas business, to Kirin Holdings as it seeks funding for a shift into heavy industry, Reuters reported July 5.

San Miguel and Japan's second-largest brewer confirmed on Thursday they were in preliminary negotiations. Kirin is a longtime partner of San Miguel and owns 20 percent of the Philippine group.

A San Miguel source told Reuters it was looking at selling up to 49 percent of National Foods, which it bought for A$1.9 billion ($1.6 billion) in 2005 in its biggest acquisition, to pay down debt and fund a move into mining, power and infrastructure at home.

The source said other groups, including U.S. private equity firm Carlyle, had approached the Manila-headquartered company about the Australia operation but San Miguel was keen on talking to Kirin.

The Japanese company has brewing interests in Australia through a 46 percent stake in Lion Nathan Ltd.

Earlier on Thursday, the Australian Financial Review had said Kirin might make a bid of over A$2 billion for National Foods, whose operating income rose 10 percent in 2006 to A$170 million aided by the integration of juice maker Berri Ltd.

In Manila, San Miguel shares outperformed the general index as investors welcomed the company's move to trim its multi-billion dollar debt pile.

San Miguel's B shares, which are open to all investors, rose 4.22 percent in a broader market that was 1.89 percent stronger. Its A stock, which is restricted to local buyers, was up 2.03 percent. Kirin shares were flat in Tokyo.

But some analysts criticized the sale of a large stake in National Foods, which contributed 37 percent of San Miguel's operating profit last year.
"Strategically, to sell it and deploy it in new non-allied businesses that are, in San Miguel's case, untested, doesn't look too good to me," said Leo Venezuela, analyst at ATR Kim Eng Securities.

"They were able to generate significant synergies from the integration of Berri and National Foods as can be shown from the improved operating margins. I think because of that they will be able to sell it at a higher price."

Selling a large chunk of its Australian business, underlines San Miguel's need for cash and a healthier balance sheet as it embarks on investments in capital-intensive industries.

The group, founded as a brewery in 1890, took on billions of dollars in debt to fund a regional spending spree several years ago that was meant to reduce its dependence on a maturing home market.

"For me, paring down debt is always good, it's a prudent thing to do, and if they are going to non-allied ventures then they have to be liquid," said Paul Joseph Garcia, chief investment officer at ING Bank in Manila.

San Miguel's debt stood at 138 billion pesos, or $3 billion, at the end of 2006, compared to 32 billion pesos three years ago. Its debt to equity ratio is 90 percent.

The group, which stunned investors in May with its plans to spin off and list its domestic beer and regional packaging divisions and get into heavy industry, also plans to raise $500 million in a hybrid bond issue this year.

Despite its wave of overseas buys, San Miguel is still reliant on the low-growth Philippine market, which it dominates for beer, dairy, processed foods and grains.

"I think they are realizing that to add value to the company they may need to look into other sectors that may have more growth prospects such as mining, infrastructure and energy," said Garcia, who holds San Miguel stock.

($1 = A$1.17 = 46.11 pesos)


06 July, 2007