For $105 Million: Aboitiz sells off shipping companies

CEBU, Philippines – After a failed buyout agreement with the KGLI-NM Holdings Inc., two years ago, the Aboitiz Group has decided to finally get-out from the shipping business, following the company's announcement to sell its entire stake on Aboitiz Transport System Corporation (ATS) to Negros Navigation Co. Inc., (Nenaco)

In a special board meeting held yesterday, the directors of Aboitiz Equity Ventures (AEV), the majority owner of ATS approved the sale of its entire stake in ATS.

In a video-conference held yesterday at the AEV headquarters in Cebu City, AEV chief financial officer (CFO) Stephen G. Paradies announced that the sale-agreement with Nenaco was signed yesterday in Shanghai, China.

"It's a go," said Paradies, explaining that unlike its former agreement with KGLI-NM Holdings Inc., the new purchase deal is already locked with a contract, which will include time-table of the agreement completion, which is until January 10 next year, or earlier.

The agreement essentially values the equity of ATS at US$105 million, which is equivalent to approximately US$0.043 per share.

Since, Nenaco intends to acquire 100 percent of ATS and as part of the agreement a tender offer will be made to other shareholders of ATS using the same per share valuation.

AEV owns 77.24 percent of ATS while Aboitiz & Company Inc. (ACO) owns 15.96 percent.

Not included in the transaction are the joint venture companies of ATS with the Jebsen Group of Norway, which are engaged in ship management, manning and crew management, and bulk transport.

Prior to the closing of the transaction with Nenaco, AEV will acquire ATS' interest in the ship management, manning, crewing, and bulk transport businesses, while ACO will acquire the chartering business.

Nenaco is sourcing part of its funding from an equity investment of the China-ASEAN Marince B.V., a wholly-owned subsidiary of the China-ASEAN Investment Corporation Fund (CAF).

"The divestment of ATS was a very difficult decision to make considering the Aboitiz Group has been in the transport business for over 100 years. The Board of Directors, however, felt the Nenaco offer was reasonable and representative of ATS' value. Re-investment of the sale proceeds in other identified areas will greatly enhance shareholder value over the long term," said AEV president and chief executive officer (CEO) Erramon I. Aboitiz in a statement.

Paradies emphasized that the sale-money will be used for expansion plans of its three core businesses,-power, banking and food.

The combined Nenaco-ATS entity will have 31 vessels and will be able to offer comprehensive range of value-added logistics services to meet the needs of all types of customers.

In the scheme of things, Paradies said the ATS' revenue contribution to the conglomerate is "significant".

From January to September this year, ATS posted revenue loss of over P300 million, because of the heavy dry-docking of vessels implemented in the first half of the year.

In the second half though, Paradies said while some vessels are already operating, the outlook "is much better."

Part of the initial agreement with Nenaco, Paradies said is to remain the entire management and people intact, unless a revamp and consolidation program will be implemented after both companies' closed the deal.

At present, ATS, an integrated transport provider in the Philippines has a total of 2,064 personnel.

"I'm not saying that nobody be let go [will be affected]. There might be,"

Paradies explained adding that based on the initial talks, Nenaco wanted to retain the entire ATS management.

After the sale, the new transport entity will be called ATS Corporation.

Although, Paradies emphasized that Nenaco and its partner CAF, are not allowed to use Aboitiz name in "any way."

Paradies believes that the sale would also benefit the country's transport industry in general, especially the shipping sector which has been badly affected by the changing business environment with the stiff competition with the airlines.

"The shipping industry now needs capital," Paradies said expressing confidence that CAF will be able to improve the shipping industry in the country, considering its huge financial capability.

Currently, ATS's shipping business, which carries the brands - Cebu Ferries,

SuperFerries, and SuperCat - has a market share of 34 percent in the country's shipping business.

Based on the agreement, Nenaco will tender a one-time payment to AEV on or before January 10, 2011.

In April last year, AEV announced the withdrawal of KGLI-NM from its planned purchase of ATS, after the company failed to pay the US$30 million partial payment that was due on April 30, 2009.

The US$30 million was supposedly the minimum payment required by AEV for its first installment of the total P4.5 billion equity value of ATS.

This time, Paradies said the company is confident that the purchase agreement will finally push through, as Nenaco and its major investor CAF are much interested in the purchase.

Nenaco has been in the shipping industry in the Philippines since 1932.

CAF, on the other hand, is a private equity fund sponsored by the China Export-Import Bank. It targets investments opportunities in the 10 ASEAN countries, focusing on infrastructure, energy and natural resources. -/NLQ (FREEMAN)