GSIS sells Meralco stake to San Miguel

MANILA, Philippines - Food and beverage giant San Miguel Corp. may finally deliver on its plan to get out of its core business, Monday announcing plans to purchase a state pension fund’s stake in Manila Electric Co. (Meralco). In a disclosure to the stock exchange, San Miguel said it had entered into an agreement with the Government Service Insurance System (GSIS) for the latter’s 27% stake — equivalent to 300,963,189 shares — in Meralco. The company also said it was eyeing a stake in Petron Corp. and had initiated talks with the Ashmore Group, which earlier this year took control of the refiner. It has agreed to pay P90 per share for Meralco, more than double the firms’s closing price of P44.50 Monday. The Lopez-led distributor’s shares hit a 52-week high of P89.50 in December last year. Winston F. Garcia, GSIS president and general manager, said San Miguel would pay the pension fund around P30 billion over three years, broken down into P27.5 billion as the total sale price and P2.5 billion in interest payments. San Miguel announced its agreement with the GSIS long after the stock market — which plunged by a record 12.3% — had closed for the day. Its moves, the firm said, were in line with plans to venture into "high-growth industries" such as mining, power, infrastructure, water, other utilities and property. Analysts, even Albay Governor Jose Ma. Clemente S. Salceda, who was formerly a market analyst, were skeptical. "Something is not right with the picture. The price is bizarre. Such moves in the middle of a market meltdown would only heighten suspicions rather than assure," Mr. Salceda said through a text message. "Smells like a prenuptial deal." Other analysts said they saw a "political motive" behind the deal, especially since the GSIS, under the helm of Mr. Garcia, had essentially threatened to take over Meralco after complaining of a lack of transparency and high power rates. "The only good thing is that Meralco will be able to solve its conflict with GSIS although admittedly, Meralco is already the best power-related company that San Miguel can enter right now," an analyst said. Mr. Garcia, in a telephone interview, said selling at premium would result in a P12.7-billion gain for the state pension fund at a time when markets worldwide were being battered. "We are happy about this deal. In the worst time in the stock market and while everybody is losing their shirt, we are getting over 100% over market," he said. "We will be able to get P12.7 billion. Our gain is something we are happy about." Mr. Garcia did not answer a question on what would happen to his fight against Meralco’s supposedly high power rates. Just last week he had criticized the Energy Regulatory Commission for approving rate increases. Meralco President Jesus P. Francisco, meanwhile, told BusinessWorld the company "welcomes the new change in ownership [of the stake]." "We are happy that a very reputable company is putting more value to [Meralco] than what the market has put. San Miguel has been known as a professionally-run company although I do not know how the market will react to the news," Mr. Francisco said. "I do not know if San Miguel will be active or passive owners but as an owner of a significant block of shares, they will be represented in the board and will more likely be involved in the company’s decision-making." Also Monday, San Miguel said its board of directors had approved an alliance with Indonesian firm PT Bakrie and Brothers for the latter’s PT Bumi Resources operations. PT Bumi is engaged in mining, oil, gas and energy-related projects. San Miguel said PT Bumi, through various subsidiaries, owns the world’s largest export coal mine with operations in East and South Kalimantan. — Kristine Jane R. Liu with a report from Ruby Anne M. Rubio, BusinessWorld