San Miguel Food preps Philippines' largest-ever equity raise

Century-old Philippine conglomerate approves plan to sell shares worth $1.7 billion in its F&B unit to comply with the local stock exchange’s free-float requirement.

One of the biggest conglomerates in the Philippines, San Miguel Corporation, is on course to conduct the country's biggest ever equity offering after it received board approval on Wednesday to sell a 20% interest in its newly-established unit San Miguel Food & Beverage.

San Miguel’s sale of 1.2 billion shares in the food and beverage unit could raise Ps89.4 billion ($1.7 billion) based on the stock’s Ps74.5 Wednesday close. The largest equity deal in the country was BDO Unibank’s $1.2 billion rights offering, completed in January last year.

The conglomerate is required to sell shares to the public to meet the 15% minimum free-float requirement for constituents of the benchmark Philippine Stock Exchange index. At present, San Miguel owns 95.8% of San Miguel Food.

San Miguel accumulated the bulk of the shares after it consolidated its food, beverage and brewery business into the newly-established San Miguel Food.

The merger between San Miguel Pure Foods, Ginebra San Miguel and San Miguel Brewery was completed in June through a $6.6 billion share swap.

The newly-established company is not yet a constituent of the Philippine Stock Exchange index but it seems only a matter of time before it is included.

With a market capitalisation of $8.5 billion, San Miguel Food is the country’s sixth-biggest listed company behind SM Investments, SM Prime, Ayala Corp, Ayala Land and BDO Unibank.

As it stands, San Miguel will enjoy a revaluation following the share sale since its shares are now undervalued compared to its F&B unit. Despite owning the bulk of shares in San Miguel Food, San Miguel’s current market value of $6.1 billion is only about 78% of the subsidiary.

San Miguel will also sell shares at a premium to its own stock, since San Miguel Food is trading at around 22 times earnings last year, compared to 15 times p/e for the parent.

According to a source familiar with the situation, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS are likely to be mandated as bookrunners for the share sale. 

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