San Miguel seals dairy deal amid acquisition flurry
in King's Creameries, a Singapore-registered ice cream producer -
but with new debt already financing its current expansion strategy
and a €1.07 billion bid to buy Australia's National Foods on the
horizon, just how long will it be able to sustain its spending
spree, asks Tom Armitage.
Recently the company has made a string of successful acquisitions in the Asia-Pacific region, which includes Australian beer company Boggs and juice manufacturer Berri, as well as tabling bids for Del Monte Pacific and Australia's largest dairy producer National Foods.
According to analysts, the recent acquisition of a 76.38 per cent stake in King's Creameries from Star Fortune and H&Q Asia Ventures II for a reported 8.15 million Singapore dollars (€3.9 million) will further add to its debt-pile, which has already had an adverse effect on San Miguel's profitability and earnings in 2004.
In order to finance the National Foods acquisition alone, San Miguel is to borrow US$1.85 billion, of which US$1.4 billion would go towards the acquisition of National Foods, while the remaining US$450 million will be used to offset and refinance existing debt.
Although no financial details of the King's Creameries deal were disclosed, Singapore-based dairy producer Malaysian Dairy Industries Private, which operates across Malaysia, will still retain its remaining 23.62 per cent stake.
The deal ties in with San Miguel's regional expansion strategy to consolidate its business and product portfolio across the Asia-Pacific region as well as giving it immediate entry into the Malaysian and Singaporean ice cream market.
In addition to distributing its branded bulk and single-serve ice cream products across Singapore, Malaysia, Brunei and the Maldives, King's Creameries also has processing facilities in peninsular and East Malaysia.
San Miguel's ownership has recently been thrown into uncertainty, after Gloria Macapagal Arroyo, the Philippine President, ordered her finance team to sell off the government's 39 per cent majority stake in a bid to raise US$1.3 billion.
Economists have advised the Philippine government to divert money away from risky private investment portfolios in an attempt to plug its narrow budget deficit of approximately 168 billion Philippines pesos (€240 million). San Miguel's sales accounted for around 3.4 percent of the Philippines gross domestic product (GDP) in 2003 - reflecting the high stakes involved for the Philippine government, regardless of the outcome.
Credit rating specialists Standard & Poors recently cut the nation's debt rating one level to BB- on 17 January, making the country an increasingly lucrative place for overseas investors. At the start of the week San Miguel's shares closed near an eight-year high (€1.14 per share), which after several years of deliberation has finally convinced the Philippine government to sell.
Concerns have been raised, however, that if a successful buyer is not interested in the Australian dairy sector then this could scupper San Miguel's acquisition bid for National Foods, although a spokesperson for San Miguel was quick to add that "the San Miguel bidders statement is now with National Foods shareholders and the bid will not be affected".
