Aboitizes to quit shipping, logistics

MANILA, Philippines — The Aboitiz Group is getting out of the shipping and logistics business to focus more on and grow its current core power and financial services units. The board of directors of Aboitiz Equity Ventures, Inc. (AEV), the listed holding firm of the Aboitiz Group, on Tuesday voted unanimously to accept an unsolicited offer from KGLI-NM Holdings, Inc. to purchase all its shares in Aboitiz Transport System Corp. KGLI-NM, owned jointly by Negros Holdings and Management Corp. and Dutch company KGL Investment BV, will conduct a due diligence audit over the next 60 days. KGLI-NM offered to purchase AEV’s 77.1% equity as well as the 15.93% shareholdings of Aboitiz & Co., Inc. (ACO), the group’s private holding firm. The company, in a disclosure to the Philippine Stock Exchange, said the deal had been valued at P5 billion. Aboitiz Transport’s stock Tuesday went up by almost 40% to settle at P1.90 per share. The acquisition will include all of Aboitiz Transport’s shipping and logistics businesses such as Superferry, Supercat, 2GO and MCC Transport Philippines. To be excluded is a joint venture with the Jebsen Group of Norway which involves ship management, manning and crew management. Erramon I. Aboitiz, AEV executive vice president and chief operating officer, said they had no intention to sell but found KGLI’s offer "reasonable". The Aboitiz business empire started in 1907 with one ship called "Picket" that transported hemp for trading across the islands. "We have been in the transport business for over 100 years. It was a very hard decision. But we are businessmen. Sometimes, we have to make choices on where to put our money," Mr. Aboitiz said in a conference call with reporters. "[A]t that price, we can deploy the funds we raised from the sale" to the company’s other businesses, he added. Saying "we have limited capital as a group," Mr. Aboitiz said the consensus was that "over the long term," the transport business would not have grown as much as its other units. "It’s a reflection of alternatives," he said. Terms to be finalized Under the memorandum of agreement signed Tuesday between KGLI-NM on one hand and AEV and ACO on the other, the former will purchase all share-holdings of the two Aboitiz companies in Aboitiz Transport on a per share price to be computed based on firm’s equity value of P5 billion, which is equivalent to P2.044 per share. The final terms will depend on the results of the due diligence, which is scheduled to be completed on November 22, and the execution of a definitive share purchase agreement which is expected to happen on or before January 15 next year. The agreement also provides that KGLI-NM will undertake a tender offer for shares owned by minority shareholders at the same terms offered to AEV and ACO. The proceeds will be re-invested in businesses in the power and financial services sectors. Mr. Aboitiz said. However, they have not identified the specific businesses that will benefit. "It’s still too early to count our chickens although we have a very serious buyer," Mr. Aboitiz said. Aboitiz Power Corp., which holds all the businesses of the Aboitiz Group in the sector, currently does not need additional investments, he said. "Aboitiz Power, by itself, is very well-capitalized. Its income contribution (to AEV) is getting to be a dominant part. There is no need to raise additional equity. But you never can tell," he added. Aboitiz Power plans to bid for the power generation assets the government will privatize. If the deal goes through, Mr. Aboitiz said they would be leaving the transport business in good hands. Sale good for everybodyMr. Aboitiz said the sale will "be good for the industry and (the company’s) employees." "The only change that will happen is that the (Aboitiz) family members will turn over their positions over time," he said. He did not give a specific timeline. KGL Investment, which holds 60% of the KGLI-NM, has been involved in logistics and has investments in Negros Navigation as well as in port and port-related businesses. It was said to have established an air transportation logistics complex in Clark Field under an agreement with the Clark International Airport Corp. "Overall, it’s a transaction that’s good for everyone. This is good for the country because a new investor is coming in. It’s good for AEV because it would give us additional resources," Mr. Aboitiz said. "And it’s good for KGLI-NM. They’re happy with the management, they’re impressed professionally by our group." If the deal doesn’t go through, he said Aboitiz Transport would continue to grow its logistics and distribution business. "We do not want to sell to anybody," he said. Mr. Aboitiz said there would be no merger between Aboitiz Transport and Negros Navigation. Aboitiz Transport reported a 9% improvement in consolidated revenues to P6 billion in the first six months of this year. But total costs and expenses were said to have jumped by 15%, largely due to higher fuel and charter-related expenses. The higher fuel prices have eroded Aboitiz Transport’s margins. As of June 30, net income amounted to only P16.8 million compared to P366 million in 2007. As of December 2007, Aboitiz Transport had right-sized its fleet to 17 operating vessels. Three Superferry vessels were sold last year for P2.4 billion to pay off a P1.8-billion debt. Its fleet now includes four fast ferries under the brand Supercat, nine roll-on-roll-off passenger vessels, and two freighters.