Pure Foods eyes P50-billion shares issue

MANILA, Philippines - Failing to reach a deal for the sale of a 49-percent stake, publicly-listed San Miguel Pure Foods Co. will instead issue up to P50 billion worth of preferred shares to bankroll its expansion and participation in “high-yielding investments” being pursued by its parent firm, San Miguel Corp.

In its disclosure to the Philippine Stock Exchange, Pure Foods said its board approved yesterday the company’s participation in businesses, including power generation or transmission, water and other utilities and infrastructure, which have a return on equity triple that of the conglomerate’s food and beverage businesses.

In preparation for this, Pure Foods has approved the reclassification of up to 75 million common shares into non-voting, cumulative and non-participating preferred shares with other features to be determined by management.

Another fund-raising activity approved by the board was the issuance of San Miguel Mills and other subsidiaries with financial capability to issue fixed-rate long term bonds, amounting to P10 billion. 

San Miguel Mills produces and markets flour, with its mill in Mabini, Batangas as its main flour production facility. This is the first flour mill in the country to receive an ISO 9002 certification. Its acquisition of the assets of Pacific Flour Mills Inc., a pioneer in the flour industry, further strengthened the company’s hold of the market.

San Miguel Mills produces and distributes Emperor Hard Flour, Queen Soft Flour, Baron All-Purpose Flour, King Hard Flour, Pacific Hard Flour and Red Dragon Soft Flour brands, together with other specialty flour products.

San Miguel, the food, drinks and packaging giant, is itself planning a P75-billion share offering to fund its acquisitions as it seeks stronger avenues to accelerate growth.It has raised around $3 billion from asset sales over the past three years.

Pure Foods’ planned preferred share issuance followed failed negotiations between San Miguel and two prospective buyers – the partnership between the Campos family and tuna canner Century Pacific Group, and Universal Robina Corp. of the Gokongwei family.

San Miguel rejected their offers since they wanted to acquire 100 percent of Pure Foods. The conglomerate was only willing to divest up to a 49-percent stake in the food processing firm.

San Miguel owns 99.92 percent of Pure Foods which owns the Purefoods, Magnolia, Monterey Star, San Mig Coffee and B-Meg brands. 

As of end-March this year, it had P121.07 billion in cash and near-cash assets as against P209.4 billion in the same period a year ago.

San Miguel is hard pressed to raise funds to cover the purchase of substantial stakes in several companies including power distributor Manila Electric Co., oil refiner Petron Corp., Bank of Commerce, Caticlan International Airport and Development Corp., several power plants, toll road operations and coal mines.

For Petron alone, San Miguel would need to shell out around P19 billion before the year ends if it decides to exercise an option to buy the remaining stake in SEA Refinery Corp., which holds 50.1 percent of Petron.

Between 2009 and 2011, San Miguel will also have to pay P27 billion to the Government Service Insurance System for the state pension fund’s 27 percent stake in Meralco.

Aside from these, San Miguel is considering pursuing two major infrastructure projects - the P65-billion Laiban Dam project, in Tanay, Rizal which the company said would “alleviate the immediate need to provide an alternative water supply for Metro Manila” and the Diosdado Macapagal International Airport in Pampanga which could be worth more than P8 billion.