SMC takes over Holcim for $2.15B
For the first time since the influx of foreign players in the 1990s, the country’s largest cement-making enterprise has gone back to Filipino hands following the $2.15-billion deal by conglomerate San Miguel Corp. to take over Holcim Philippines Inc.
Apart from acquiring a new crown jewel to complement its growing infrastructure empire, SMC made history for sealing the biggest merger and acquisition deal in the local cement industry.
“By and large, SMC becomes a proxy of this economy,” said ATR Asset Management head of research Jose Mari Lacson. “From a strategic point of view, it’s good for national interest because it brings capacity to Filipino hands. We need cement to grow the economy so it’s aligned with national interest.”
SMC, advised by Swiss investment house UBS AG, won an auction that pitted it in the final round against Anhui Conch, the largest cement manufacturer in mainland China.
For its part, this transaction completes the exit of LaFargeHolcim from Southeast Asia, which the European cement giant described as a “hyper competitive arena.” It earlier divested its assets in Indonesia, Malaysia and Singapore.
Based on a deal signed Thursday night, SMC agreed to acquire 85.7 percent of Holcim Philippines and make a tender offer for shares held by the remaining investors.
Holcim Philippines will be folded into First Stronghold Cement Industries Inc., a wholly owned new unit of San Miguel Equity Investments Inc., which, in turn, is a wholly owned subsidiary of SMC.
SMC said the acquisition would “increase the foothold of the San Miguel group in the cement business, and will provide the opportunity to implement its plan to expand its cement business nationwide.” Through its indirect subsidiary Northern Cement, SMC is but a marginal player in the local cement space with an annual capacity of 660,000 metric tons.
The next hurdle for SMC is to have this deal cleared by the Philippine Competition Commission (PCC), which is mandated to promote and maintain market competition within the Philippines by regulating anti-competition behavior.
Holcim Philippines operates four integrated cement plants and one grinding plant in the country. It has manufacturing facilities in La Union, Bulacan, Batangas, Misamis Oriental and Davao, as well as aggregates and dry mix business and technical support facilities for building solutions. It has an annual cement production capacity of around 10 million metric tons and a market share of close to 30 percent.
“The decision to put the deal under SMC is smart. It may help win PCC approval and will avoid a huge debt load for Eagle (Cement). The PCC will put this deal under a microscope but we rate the odds of approval good,” Abacus Securities head of research Raymond Neil Franco said.
Eagle Cement – likewise led by the family of SMC president Ramon S. Ang – is currently the fourth largest cement-maker in the country. It will have an annual cement capacity to 8.6 million metric tons by 2020 once its expansion program is complete.
The deal may be “expensive from the point of view of an outsider,” but ATRAM’s Lacson said Ang may have valued this based on the synergies to be unlocked given SMC’s vast infrastructure projects. SMC is building a brand-new airport in Bulacan alongside other big-ticket railway and tollroad projects.
In the last two decades, SMC has diversified from its traditional food and beverage businesses to secure market-leading interests in new areas like power generation and oil refining businesses.
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