Coca-Cola wins battle for Cosmos

RFM Corp. confirmed yesterday that it would sell its Cosmos Bottling Corp. subsidiary to Coca-Cola Bottlers Philippines, Inc. (CCBPI), a joint venture of Coca-Cola Co. and San Miguel Corp.

RFM president Jose Concepcion III said pricing and other details would be announced next week, at which time a memorandum of understanding (MOU) would be signed by the concerned parties.

He said RFM had the choice of an outright sale of its 83.5-percent stake in Cosmos or merging the operations of the soft drink bottler with Pepsico Inc.

"San Miguel presented the more aggressive offer," he said. "The MOU signing will hopefuly be next week."

Sales of Cosmos product Pop Cola, and other beverages, account for 20 to 25 percent of the local soft drinks market. In the first three months this year, Cosmos posted a 44-percent growth in its net income. The fold-in of Cosmos in SMC will result in a very dominant position in the carbonated drinks market for CCBPI which currently has a share of close to 70 percent.

Concepcion gave no price details but sources have previously said Pepsi had bid $270 million (about P14.58 billion) for Cosmos. Other sources said CCBPI topped Pepsico‘s offer by P2 billion.

The sources close to the deal said while bids from both the Coke unit and Pepsi were competitive, RFM had decided in favor of Coke because there were fewer conditionalities and it could receive payment faster.

Analysts said Coke would be willing to pay a premium in order to mop up the competition.

"They are buying out a competitor, they are controlling the market, they will want to pay a premium for that," said Andrew Long, head of research for Vickers Ballas.

"Just think of the money they will save on their advertising and promotion budget because they won’t have to chase after Cosmos."

Cosmos will be SMC’s third major acquisition this year, following similar agreements with food processor Pure Foods Corp. and CCBPI itself. In March, SMC reacquired majority control of CCBPI for $1.24 billion, following it up with the purchase of Ayala’s 92-percent stake in Pure Foods for P8 billion last May.

RFM officials have said their asking price was in the region of P16 billion.

The company, strapped for cash after a foray into real estate, has already sold a stake in Nasdaq-listed semiconductor manufacturer PSi Technologies and in unlisted Consumer Savings Bank.

It has said the sales have raised about $36 million and that the funds have been placed in an escrow account to meet obligations of about $56 million relating to a convertible bond which came up for redemption in May.

RFM also said last week it posted a net loss of P520 million in 2000 with foreign exchange losses worth a total of one billion. Cosmos was the one bright spot in its stable, posting sales of P5.24 billion and net profit of about 690 million, the company said.

Cosmos closed yesterday at P4.85 a share, up five centavos, but off a year-high of P5.30 reached last month.

Analyst Martin Enrile at ATR-Kim Eng Securities, said a sale price of P14.5 billion could include a "non-compete value" of about P2.5 billion to RFM, a payment to ensure it did not reenter the soft drinks industry for a fixed number of years.

The remaining P12 billion translated to a per share price of P5.22, he said.

Analysts said the price could be higher, since the Coca-Cola/San Miguel joint venture would be happy to pay a premium for Cosmos since it would dominate the local market.

Long said Cosmos had a book value of P1.77 per share, but purchases of soft-drink bottlers at three times book value or even more were not unknown.

"Pepsi, over the last few years, have been buying back some of their own bottlers in Latin American countries and the valuations they were paying were right around these valuations," Long said. – Reuters and Conrado Diaz Jr.