SMC spins off key units

Conglomerate San Miguel Corp. is set to spin off its traditional businesses into San Miguel Pure Foods Co. Inc., creating a new consumer powerhouse with the infusion of P336.35 billion worth of shares in its beer and other beverage businesses.

Based on a group-wide restructuring plan unveiled yesterday, Pure Foods will be transformed into a much larger company that will own 51.2 percent of beer giant San Miguel Brewery Inc. and around 76 percent of Ginebra San Miguel Inc. (GSMI). To reflect this infusion of businesses, Pure Foods will be renamed San Miguel Food and Beverage Inc.

By creating a clearer dichotomy between San Miguel’s traditional and nontraditional businesses, the conglomerate aims to simplify the corporate structure and make it easier for financial markets to understand and appreciate the value of its operating assets.

In a text message, SMC president Ramon S. Ang said the deal valued SMB—the group’s flagship traditional business—at around $9 billion. This was at the same valuation (for 100 percent of SMB) when SMC made a tender offer for minority shareholders of SMB when it voluntarily delisted from the PSE in 2013.

With the transaction, Pure Foods will be a “super consumer play,” said local stockbrokerage Papa Securities, noting that Pure Foods could eventually outpace Universal Robina Corp. as the Philippines’ biggest consumer company with a market capitalization of P468.5 billion.

Shares of Pure Foods surged 50 percent—hitting the price movement ceiling—to close yesterday at P462 each, giving it a market capitalization of P51.33 billion.

SMC will subscribe to 4.24 billion additional common shares of Pure Foods, to be taken out of new shares from a planned increase in authorized capital stock and stock split.

The subscription by SMC to new shares in Pure Foods is worth P336.35 billion, based on an independent valuation by ING Bank.

As full payment for this subscription, SMC will cede to Pure Foods its 7.86 billion common shares in SMB and 216.97 million shares in GSMI.

SMC, however, will have to file for tax-free ruling relating to the exchange of SMB and GSMI common shares for the new shares.

After this transaction, 83 percent of Pure Foods’ value will come from the beer business, said ATR Asset Management head of research Jose Mari Lacson, suggesting that this would effectively transform the company into a beer play.

“The positive about the transaction is that it creates this huge food and beverage conglomerate in PF.  At the end of the day though, it’s mostly SMB. So investors buying PF going forward are buying beer and not so much bacon and hotdogs. All three companies inside this F&B (food and beverage) conglomerate are doing fairly well in terms of earnings growth. The question though is whether buying PF today or post merger, an investor is actually buying SMB at cheaper multiples,” said Lacson.

In a research note, BPI Securities said the transaction would be positive for Pure Foods, resulting in a 294.3-percent increase in fair value which will more than offset any dilution from the issuance of new shares. 

“We also note that the transaction will have a significant impact on PF’s market cap size, potentially increasing liquidity and unlocking its value. We continue to like PF given its large portfolio of strong brands, margin expansion from its growth in the branded segment, and its inexpensive valuations,” BPI Securities said. 

“With the transaction, PF now becomes a food and beverage conglomerate with market leadership in its key segments, further cementing our positive outlook on the company,” it added.