SMC readies $4-B cash pile for acquisitions
San Miguel Corp. (SMC), the country’s biggest corporation, is preparing a cash pile of at least $4 billion that it plans to use to help fund more acquisitions in the future, especially in the field of energy.
In an interview, SMC president Ramon S. Ang said the amount represented the combined liquidity presently held by the conglomerate, including those of its various operating units.
“The problem of San Miguel is that we have about $4 billion in cash and we have no use for it yet,” he said, explaining that the group’s liquidity was boosted further by proceeds from the recent sale of its stake in Meralco to the Gokongwei group, which raised $2.1 billion.
“So why don’t we use this to pay down our debts? We don’t want to because this amount is part of our reserves for any acquisition opportunities,” Ang pointed out.
On top of his list is an unspecified “regional” energy firm with an estimated equity value of $10 billion. The acquisition target is involved in on-again, off-again talks with the conglomerate for at least two years now, although Ang remains hopeful that the deal could be sealed eventually.
If successful, the energy firm will provide a big boost to San Miguel, whose revenues Ang wants to raise to at least $50 billion—mainly through acquisitions—by the year 2020.
“Five years ago, before our diversification, San Miguel had [annual] revenues of $4 billion,” he said. “For 2014, we expect revenues to hit $20 billion. That’s five times more than when we began.”
Ang believes that the widely expected market volatility that will follow the end of the US Federal Reserve’s ultra-loose monetary policy will help the conglomerate achieve its goal of acquiring more firms, despite the higher interest rates that are also expected to ensue.
Ang said the conglomerate was prepared to face higher interest rates going forward and was, in fact, expecting the kind of buying opportunities that financially turbulent times provide.
“We love crises,” he said. “When other people get into trouble, that’s when we buy. If you look at our record, most of our best and most profitable acquisitions were made around the 2008 global financial crisis. This includes Petron, our power investments, Meralco and the tollways.”
In addition, the San Miguel chief said that the sum of the conglomerate’s parts now totaled at least P30 billion, several of which have standing offers from prospective buyers.
This included a 51-percent stake in San Miguel Brewery—Southeast Asia’s largest beer maker—for which he has a standing offer of at least $6 billion, and another $600-million offer for gin maker Ginebra San Miguel Inc.
At present, San Miguel is involved in everything from tollroads to power generation. Since 2000, the conglomerate has been involved in 41 acquisition deals worth $7.8 billion. Three-fourths of these were made in the wake of the 2008 global financial crisis, according to data compiled by Bloomberg.
Going forward, Ang said San Miguel planned to embark on more power-generation projects to meet the expected demand from the country’s growing economy and population.
At least P3.2 billion would be allotted for power plants with a combined output of 2,100 megawatts, he said.
“We’ll overbuild power generation for the love of the country. This is because we need stable, reliable and cheaper power to support economic growth,” he said.
For 2013, Ang said the conglomerate was expected to report “record earnings” of at least P39 billion, conservatively. But this number could rise depending on whether or not the company’s accountants would approve a more aggressive income recognition scheme for some of its sales, he explained.
