SMC exits Meralco, sells stake to Gokongweis

MANILA, Philippines - Diversified conglomerate San Miguel Corp. (SMC) is selling its minority stake in power utility giant Manila Electric Co. (Meralco) to the Gokongwei family.

Proceeds of the share sale, which marks SMC’s exit from the power distribution giant just five years since it first bought bulk of its Meralco shares, will bankroll SMC’s various investment opportunities, its top executive said.

“SMC, together with San Miguel Pure Foods Co. Inc. and SMC Global Power Holdings Inc. agreed to sell to JG Summit Holdings Inc. the shareholdings of the SMC Group in Meralco,” SMC said in a disclosure to the stock exchange.

JG Summit, the investment holding firm of tycoon John Gokongwei, said in a separate disclosure that it will buy out the SMC Group in Meralco, marking its entry into the country’s largest power distributor.

The deal is “subject to the satisfaction of closing conditions mutually agreed upon by the parties,” the two conglomerates said.

“For investments,” SMC president and chief operating officer Ramon S. Ang said in a text message to reporters when asked where SMC will use the fresh capital.

Ang said the company would raise about $2 billion from the sale giving it enough ammunition to grab new opportunities that may come its way.

SMC hired Credit Suisse as the sole financial adviser for the transaction, whose value was not disclosed. The food-to-infrastructure conglomerate controls a 27.1-percent stake in Meralco, which is worth roughly P83 billion based on Friday’s closing price of P274 per share.

Shares of Meralco rallied 4.38 percent to P286 yesterday while SMC inched up 0.4 percent to P74.80, bucking the stock market’s slump. JG Summit, meanwhile, fell 1.78 percent to P38.60.

“It’s a win-win deal for SMC, which exited Meralco so they will end up with additional financial muscle for their projects,” Astro del Castillo, managing director of First Grade Finance Inc., said in a phone interview.

The transaction allowed SMC to exit Meralco, controlled by the group of Manuel V. Pangilinan that partnered with the Lopez family to secure a controlling block in the power of utility.

In July, SMC unloaded 64.33 million shares or 5.7 percent of Meralco’s total outstanding shares to various investors at P270 apiece for a total transaction value of P17.369 billion. It trimmed SMC’s shares in Meralco to 27.1 percent from the previous 32.8 percent.

In October 2008, SMC bought the Government Service Insurance System’s 300.963 million Meralco common shares at P90 apiece.

From its core brewery and food business, SMC has expanded into power production (SMC Global Power Holdings Corp.), downstream oil sector (Petron Corp.), packaging (San Miguel Yamamura Packaging Corp.), airline (Philippine Airlines) and several infrastructure projects like the Caticlan Airport and Skyway.

SMC is also the company behind the P15.52-billion Ninoy Aquino International Airport (NAIA) Expressway. Construction for the expressway, which will provide access to NAIA Terminals 1, 2 and 3, will start in January. The conglomerate earlier said it is investing $25 billion in a foreign oil and natural gas company.

For its part, the deal ushers in a new partnership between the group of Pangilinan and the Gokongwei family.

JG Summit will benefit from the large upside of Meralco while the Pangilinan camp will secure a friendly partner, Del Castillo said.

In 2011, telecommunications giant Philippine Long Distance Telephone Co. acquired Sun Cellular operator Digital Telecommunications Philippines Inc. of the Gokongwei family through a P69.2-billion share swap deal.

For infrastructure projects, JG Summit and Pangilinan-led Metro Pacific Investments Corp. earlier formed a joint venture company to bid for the expansion and operation of the P17.5-billion Mactan Cebu International Airport project.