E-Malt.com News article: 4706

Philippines & Australia: Philippines brewing force, San Miguel Corp. (SMC) has acquired Australia’s largest dairy company, National Foods Ltd., for more than US$1.4 billion. SMC’s rival for the bid, Fonterra Cooperative Ltd., withdrew and instead offered to sell its 19-percent stake in National to the Philippine brewery and food giant, ABS-CBNNEWS commented.

The bidding war began December last year. SMC topped Fonterra’s offer with Australian $6 a share initially. Fonterra countered with A$6.20 which SMC exceeded with a final A$6.40 a share gambit.

Fonterra’s chief executive, Andrew Ferrier, said National Foods’ growth opportunities in Australia did not justify A$6.40 a share. Fonterra, the world’s largest exporter of commodity dairy products, bought its 19 percent (56.5 million shares) in National at an average of A$2.68 a share or for only A$151.42 million. It will now sell those shares to SMC for A$361.60, a profit of 139 percent, or $210 million.

Plus dividends of A$45.5 million, Fonterra’s total gain is A$255.68 million.
For its part, SMC’s purchase of National Foods makes it one of the largest food and beverage conglomerates in Asia. National is its biggest acquisition so far.

In the past year and a half, SMC has been on a frenetic buying spree.

SMC has also offered $400 million for 100 percent of Del Monte Pacific, which owns the Del Monte pineapple fruit, juice and catsup brands in the region. Lucio Tan was also interested but only in 40 percent of the company, for $160 million. The Singapore government rejected Tan’s bid citing the rule that a tender bid must buy out all those willing to sell.

SMC has raised to 100 percent its 51-percent stake in Berri Ltd., Australia’s largest citrus fruit processor, and paid $400 million for it. Berri is to increase its Asian sales to 30 percent from 8 percent, using San Miguel’s foothold in the China beer and beverage market, the largest in the world.

In March 2004 San Miguel bought 75 percent of P. T. Pure Foods Subah Indah of Indonesia; in April, the snack food company, RealSnacks Manufacturing; in June, paid US$97 million for Thai Amarit Brewery Co. of Thailand; in August, 51 percent of Berri for $95.8 million (later increased to 100 percent); in October, entered into a joint venture with Singapore’s Super Coffeemix; in November, bought for $28-million Guolene Packaging of Malaysia, and paid P184.7 million for 40 percent of C.N.T. Wine and Liquor Co., a Thai wine, brandy and liquor factory. It will now be Ginebra San Miguel’s partner.

San Miguel had previously acquired for A$96 million the niche Australian brewer James Boag and Son, which last year turned in good results. Boag became the second best-selling premium beer in Australia. Operating income rose 19 percent while volume improved 12 percent from 2003.

Why is San Miguel on an acquisition binge? There are two reasons. One is that the domestic market for SMC products has been limited, narrowing the company’s growth potential. Of course, SMC sold 174 million cases of beer last year, the highest in 116 years.

Another is political and economic consolidation. With free trade, San Miguel sees Asia as its natural playground.

And there is big money on it. Ramon S. Ang, vice chair and president of SMC, was one of the first to see the region’s huge potential and its capacity for making San Miguel one of Asia’s best known brands. Overseas is also the only way to make SMC a $10-billion company by 2007, Ramon Ang’s goal.

The other reason is consolidation. SMC chair Eduardo Cojuangco Jr. has proven himself such a spectacular CEO for parlaying an old-economy product, beer, into a 21st century brand with global name recall and subsidiary brands.

Danding’s singular performance makes it difficult for the government to oust him and take over San Miguel on the ground of cronyism. He is not a crony and he stands by his own merits as an entrepreneur and CEO of the first order.

In buying companies and seeking alliances abroad, Danding is also attracting natural allies who like the way he runs San Miguel. One example is giant Kirin Brewery of Japan. It acquired 20 percent of SMC and liked what it saw and thus is buying more shares. Kirin believes SMC is and will be the best partner to exploit business opportunities and bring synergies among Kirin group companies in the region.

In the overseas alcohol beverages business, Kirin has set its targets for growth in Asia and Oceania, building strong operational basis for business expansion in the region.

Inviting trophy partners was the same strategy employed by the Ayalas during the martial law years. To discourage a takeover by a rapacious Marcos-backed predator, Ayala Corp. invited the giant zaibatsu Mitsubishi Corp. for a 20-percent stake. The Japanese has since then stayed for more profitable ventures with the Ayalas.

During 2004, San Miguel began to reap the benefits of its aggressive regional expansion. Its China beer operations became profitable, its Anker Bir became No. 2 in Indonesia, its Boag became No. 2 premium brand in Australia, and it showed strong growth and higher market share in Hong Kong.

SMC plans to expand its operations in the Asia-Pacific region, such as Thailand, Malaysia, Indonesia, Vietnam, Australia and China. It has breweries in Hong Kong, South China, North China and Indonesia and for the first time in many years, beer international, is reporting a profit. Revenue rose 12 percent to $263 million with operating income to $8 million. San Miguel increased its beer market share in Hong Kong.

As for latest purchase, Cojuangco says "being one of Australia’s leading consumer product companies, National Foods is a highly attractive acquisition for San Miguel. This [buy] reflects San Miguel’s long-term strategic ambition of leveraging its core competencies to expand its presence in nonalcoholic beverages and food in selected countries in the Asia-Pacific region." By Tony Lopez


20 April, 2005