SMC to make counter offer for Indonesia's largest coal mine

Awash with cash, Southeast Asia’s largest food and drink conglomerate San Miguel Corp. will launch a counter bid for Indonesia’s largest coal miner Bumi Resources, potentially disrupting what had appeared to be a done deal between PT Bakrie & Brothers and private equity firm Northstar Pacific.

Bakrie & Brothers agreed during the weekend to sell its 35-percent stake in Bumi Resources to North Pacific, the Indonesian affiliate of Texas Pacific Group, for $1.3 billion to repay $1.2 billion of short, term debt. The price tag reportedly marks a 6.2-percent discount to the shares last traded level.

However, San Miguel president Ramon S. Ang said negotiations are currently ongoing for the purchase of a stake in Bumi Resources. “Yes, we’re in talks with Bakrie,” Ang said in a text message yesterday.

The sale of Bumi, the world’s biggest exporter of thermal coal and the crown jewel of Indonesia’s most powerful holding company, is necessary in order for Bakrie to settle all outstanding debt ahead of schedule in response to the global financial market turmoil.

Some industry observers stressed the deal is far from final, as other possible companies reportedly wooing Bakrie are US hedge fund Farallon Capital and India’s Tata Group. 

Concerns about the Bakrie group’s financial health contributed to a sharp sell-off in Indonesia’s stock market, prompting securities regulators to close the exchange for three days last month.

Earlier news reports said while there is a general understanding about the price, one major hurdle is likely to be whether Bakrie will be granted a buy-back option or a pre-emptive right to purchase the stake when Northstar decides to eventually sell it.

With about $3 billion-$4 billion in cash from asset sales, San Miguel is moving to invest in faster-growing energy, property and mining sectors.

San Miguel is in acquisition mode with plans to purchase a controlling stake in Petron Corp., the largest oil refiner in the Philippines, from London-based fund manager Ashmore Group. 

Ashmore, which owns 50.57 percent of Petron, said it would it exercise its right to acquire the government’s remaining 40 percent stake in the country’s largest oil refiner. 

Aside from this, San Miguel has agreed to purchase the Government’s Service Insurance System’s 27 percent stake in power utility giant Manila Electric Co. for about P90 a share or around $545 million.

Meralco’s service area is home to 22 million or about a quarter of the nation’s population while Petron has a network of more than 1,200 gas stations nationwide.

San Miguel, struggling to sustain growth amid sluggishness in the local food and beverage business, is putting its bet on a diversification plan which it believes will give it higher margin growth.

Previously, San Miguel, founded as a brewery in 1890, had spent more than $2 billion on buying food and drinks firms in the region, but the deals mired the group in debt and failed to reduce its reliance on a saturated home market.

San Miguel chairman Eduardo Cojuangco Jr., in a speech before the company’s shareholders in July, expressed confidence the new ventures would deliver strong results to the company.

“We want to be in industries that have scale and will grow and we are determined to build leadership positions in key areas where important trends are driving future growth, not just for San Miguel, but for the Philippines, too,” Cojuangco said.

“What we’re particularly excited about is the earning potential that these new businesses can bring. For the investment we are likely to infuse into these new businesses, we’re confident that we can extract highly attractive earnings that would significantly improve our aggregate group margins,” Cojuangco added.