Q1 slow but SMC confident as Nat Foods deadline looms

Related tags National foods

Philippine food and beverage manufacturer San Miguel has said that
it expects its acquisition of Australia's National Foods to be
completed before the close of May - despite so far failing to
convince around 75 per cent of the company's shareholders to accept
its offer, Tom Armitage reports.

At an annual shareholders meeting in Manilla yesterday, Eduardo Cojuangco Jr, San Miguel's (SMC​) chairman and chief executive, said that he expects the acquisition of Australia's largest publicly traded company to happen "very soon"​.

After a four month takeover contest with New Zealand dairy co-operative Fonterra, the company managed to secure the backing of National Foods' board with what it called a "knock-out"​ offer of AUS$6.40 (US$4.84) per share - valuing the company at around AUS$1.9 billion (US$1.44 billion).

Despite this, however, just over a quarter of National Foods' shareholders have accepted this offer (25.12 per cent, according to recent figures), which is scheduled to close on 27 May.

In order for the bid to be successful, the company must convince over 50 per cent of National Foods' shareholders to accept its offer, which analysts have previously described as "generous"​.

If SMC's bid to buy National Foods is successful, it would account for around 21 per cent of its annual turnover, leaving the food group as its biggest contributor.

Meanwhile, the company announced that operating profits had increased by a modest 2 per cent to US$32.7 million during first quarter trading (compared to the same trading period a year earlier) - falling short of analysts' expectations.

The company said that higher raw material prices, excise and interest expenses had had an adverse effect on its Q1 operating margins, although it noted that turnover had increased by 21 per cent to US$865 million.

"Growth in the first quarter 2005 has been a bit slower than we would have liked. Many challenges prevail in our current operating environment, not least the impact of higher raw materials, fuel, and transport costs and higher excises taxes,"​ Cojuangco said.

He also warned that SMC had incurred higher financing charges, stemming from the loans used to finance the National Foods acquisition (worth around US$1.4 billion) and that its short-term profits might come under pressure as a result.

SMC has said previously that in order to achieve its ambition to become one of the Asia-Pacific region's top ten food and beverage companies, it must continue to pursue growth opportunities outside its problematic domestic market - targeting specifically the regional markets of South China, Indonesia, Vietnam, Thailand, Malaysia and Australia.

In 2004, San Miguel acquired a Singapore-registered ice cream manufacturer, a Thai brewery, packaging companies in Malaysia and also entered into a joint venture agreement with a Thai spirits manufacturer.

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