Cementing relationships

San Miguel cements new unit with $2.2b Holcim purchase

The Philippines' largest conglomerate is splashing out on the country's largest cement manufacturer to take advantage of LafargeHolcim's withdrawal from Southeast Asia.

San Miguel Corporation is set to execute one of the largest merger deals out of the Philippines in recent years after the conglomerate agreed to buy a controlling stake in the country’s largest cement manufacturer in a $2.15 billion deal.

Shares of Holcim Philippines soared 6.1% on Thursday after San Miguel said that it will purchase an 85.73% interest from its Swiss parent LafargeHolcim. As per Philippines listing regulations, the conglomerate will need to make a voluntary offer for the remaining 14.27% stake held by minority shareholders.

San Miguel did not reveal the offer price per share for the 5.53 billion Holcim Philippines shares it plans to acquire. LafargeHolcim said that it is selling the stake for an enterprise value of $2.15 billion and expects the transaction to close before the end of the year.

The group will make the acquisition through First Stronghold Cement Industries, a wholly owned unit of San Miguel Equity Investments.

Sources familiar with the situation told FinanceAsia that San Miguel outbid a number of domestic and foreign bidders in the auction process, including Chinese cement manufacturer Anhui Conch and Japan’s Taiheiyo Cement.

San Miguel, which is not currently engaged in the cement business, won the auction against many cement companies because of its strong presence in the domestic market, according to the sources. LafargeHolcim is also convinced that San Miguel, with its strong financials and execution capability, can deliver the purchase within the estimated timeline.

LafargeHolcim’s disposal of its Philippines operations marks the completion of its exit from Southeast Asia, where it has experienced various challenges including soaring costs and weak demand as well as frequent delays of infrastructure projects.

Earlier this month the Swiss construction giant sold the controlling stake in its Malaysia operations for $396 million and its Singapore business for an undisclosed sum. That was six months after it sold its Indonesia operations to Semen Indonesia for $1.75 billion. 

“With the divestment of our activities in the Philippines, we are completing our exit from the increasingly hyper competitive arena in Southeast Asia", said LafargeHolcim chief executive Jan Jenisch. “While this decision is based on our strategic portfolio review, we have reached very attractive valuations allowing us to achieve a new level of financial strength.”

For San Miguel, the purchase of LafargeHolcim’s cement business will complement its infrastructure business, which is relatively less well-known than its food and beverage business.

San Miguel’s key current infrastructure project is the $14 billion new international airport in Manila, which it will build and run under a 50-year concession with the government. Other notable projects include the expansion of the Boracay airport and the construction of the South Luzon Expressway, a 36 kilometre-long toll road that runs from Alabang to Santo Tomas, Batangas.

Some investors point out that the deal entails an element of antitrust risk because San Miguel is seen to be connected to Eagle Cement. San Miguel chief Ramon Ang is the majority shareholder of Eagle Cement.

The deal could be seen as bringing together the country’s largest and fourth largest cement manufacturers, and is likely draw opposition from the likes of Cemex Philippines and Republic Cement & Building.

The transaction is subject to approval from the Philippine Competition Commission.

“The acquisition of [Holcim Philippines] will increase the foothold of the San Miguel Group in the cement business, and will provide the opportunity to implement its plan to expand its cement business nationwide,” said San Miguel in a statement.

The deal is the country's largest M&A transaction since San Miguel bought Singapore-based power generation firm Masin-AES for an enterprise value of $2.4 billion in December 2017.

UBS is advising San Miguel on the acquisition. Citigroup is advising LafargeHolcim.

¬ Haymarket Media Limited. All rights reserved.
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