Puregold seeks SEC approval of deal to buy S&R

MANILA, Philippines—Puregold Price Club Inc. has finalized its P16.5 billion acquisition of 100 percent of the operator of S&R Membership Shopping through a share-swap with their common shareholder, the family of Chinese-Filipino Lucio Co.

In a disclosure to the Philippine Stock Exchange on Monday, Puregold said it had signed the agreement with the sellers of S&R operator Kareila Management Corp. on May 13.

Subject to the approval of the Securities and Exchange Commission, as stated in the deed of exchange, Puregold will acquire 1.7 million shares of Kareila representing 100 percent of its outstanding capital stock in exchange for about 766.4 million shares of Puregold with the Co family.

The deal, which is seen to enhance the company’s position as the second-largest player in the formal retail trade industry, had been approved by Puregold’s shareholders in a meeting earlier this month. The consolidation will give Puregold-S&R a combined market share of close to a fifth of the modern retail trade industry, ranking second-largest next to the SM group of retail tycoon Henry Sy.

Puregold has a current market share of 16 percent while S&R has a market share of 3.3 percent.

Kareila through its membership shopping business has a membership base of 215,000 nationwide coming from the A-B market segment, complementing Puregold’s C-D-E market.

Based on its latest filing, Puregold has a gross margin of 14.2 percent and a net margin of 4 percent but S&R enjoys higher comparative margins of 18.3 percent and 9.9 percent, respectively.

The consolidation is seen boosting the net profits of the publicly listed Puregold by 4-7 percent. Before the S&R takeover plan was finalized, Puregold was aiming for a net profit of P1.94 billion this year equivalent to earnings per share of P0.97.

S&R was set up in 2000 in partnership with Price Smart of the US and acquired by the Co family in 2006. Operator Kareila has six stores located at Bonifacio Global City; Congressional Ave. in Quezon City; Alabang, Muntinlupa; Aseana business park in Baclaran; San Fernando in Pampanga; and Mandaue City in Cebu.

Puregold grew its first-quarter net profit by 24.5 percent to P469 million year on year as robust domestic consumer spending and new store openings sustained a double-digit growth in sales. Its net sales for the three-month period went up by 30.3 percent year on year to P10.74 billion largely due to the increase in turnover as a result of opening of new stores in the last three quarters of last year.

The company has a total of 101 stores including 62 hypermarkets, 28 supermarkets and 11 discounters as of end-March.

The retailer’s capital spending for this year is budgeted at P3 billion. The plan is to open 25 new stores, including the first hypermarket that was already opened in La Trinidad, Benguet, in January. Continuing suppliers’ support arising from scale of operations is seen to contribute to the sustainability of margins. Puregold aims to maintain gross and net profit margins at least 14 percent and 4 percent respectively this year.