THE acquisition by San Miguel Corp. (SMC) of an 88.5% stake in Eagle Cement Corp. may be blocked by the Philippine Competition Commission (PCC), CreditSights, Inc. said.
Last week, Eagle Cement’s majority shareholders agreed to sell their holdings to San Miguel Equity Investments, Inc. (SMEII), a unit of SMC.
CreditSights said that the PCC “had earlier blocked a planned acquisition by SMEII of Holcim Philippines (which had 9.4 million metric tons per annum (mtpa) capacity at FY21) and a similar outcome may be possible here.”
It added that SMC already has a presence in the cement business with 9 million mtpa capacity through SMEII and its three wholly owned subsidiaries: Northern Cement Corp., San Miguel Northern Cement, Inc., and Oro Cemento Industries Corp.
“Considering SMC already has a large cement presence, approval of Philippines’ antitrust watchdog will be required for the transaction to go through; and could act as a potential hindrance for the deal completion,” CreditSights said.
The acquisition will create synergies within SMC’s infrastructure business in addition to boosting its cement production capacity, which in turn can reduce the cost of procuring cement.
However, CreditSights said that the acquisition will not contribute so much to SMC’s financials.
In its consolidation, SMC’s revenues are expected to rise by 2% to P1.27 trillion, and its earnings before interest, taxes, depreciation, and amortization by 4% to P194 billion.
In the first half, the cement business of SMC contributed 5% to the company’s total revenues. After the acquisition, CreditSights projects the cement business to contribute 7% to SMC’s gross revenues.
“Overall, we do not think the consolidation of the Eagle Cement business would move the needle for SMC on a consolidated basis… As the transaction is a related-party transaction, with Ramon Ang helming both SMC and Eagle Cement, given the high premium paid, it raises questions on whether the deal was conducted at an arm’s length basis,” CreditSights said.
If realized, SMEII will acquire 4.425 billion shares of Eagle Cement at P22.02 apiece or a total of about P97.44 billion.
According to CreditSights, the deal is set to go through either by the end of this year or in the first quarter of 2023 subject to approvals.
CreditSights is a division of Fitch Group, which produces global credit research and commentary.
Separately, SMC on Wednesday announced its intention to make a tender offer to the shareholder of Eagle Cement after it receives the clearance from PCC.
SMEII will conduct a tender offer for all the remaining issued and outstanding common shares of Eagle Cement. This amounts to 578.877 million shares, which represent 11.5% capital stock of Eagle Cement. — Justine Irish D. Tabile