Sugar producer Victorias Milling Co. Inc. (VMC) has aborted a deal to acquire the alcohol business of LT Group Inc. as both parties cited an unfavorable economic backdrop.
VMC and LT Group subsidiary Tanduay Distillers Inc. dropped the P2.21-billion agreement for the former to gobble up Asian Alcohol Corp., a manufacturer of rectified and denatured alcohol.
“In view of the recent global as well as local economic and political events affecting the relevant industries, both parties have mutually agreed not to proceed with the transaction,” the firms said in separate disclosures.
VMC said it had decided “to take a more prudent position on the transaction consistent with its status as a company under corporate rehabilitation.”
To recall, VMC had filed with the Securities and Exchange Commission a petition for rehabilitation in 1997 due to financial difficulties.
Both parties recognized the “unusual” and “difficult” market developments hounding the sugar industry” and “the steady pressure against the Philippine peso in an industry that requires heavy capital expenditures.”
For its part, LT Group said it would continue to find other ways to unlock the best value from its investment in Asian Alcohol.
VMC and LT Group had announced the signing of a sale and purchase agreement to purchase Asian Alcohol in September. At that time, VMC said this was in line with its thrust to become a fully integrated sugar business.
“Acquiring a similar business will provide cost synergy in terms of shared manpower, information technology and supply chain,” it had said. “The company also has access to expertise that can streamline the processes to optimize production, increase recovery and efficiency of the plants.”
“The horizontal integration will not only improve the profitability and cash flows of the group, it will also increase the group’s market share in the ethanol industry, and in extension its contribution to the energy security of the country with the least negative impact to the environment,” it added.