San Miguel Pure Foods Inc is renamed San Miguel Food and Beverage Inc (FB) after the P336.35 billion share swap transaction with San Miguel Corporation (SMC) involving the infusion of 216.97 million common shares of Ginebra San Miguel Inc (GSMI) and 7.86 billion common shares of San Miguel Brewery Inc (SMB) in exchange for 4.24 billion common shares of FB. As a holding company, FB now holds an ownership of 78.26% in GSMI and 51.16% in SMB while SMC now holds an ownership of 95.87% in FB. The underlying principle behind the consolidation is to create a business platform that can benefit from the shared synergies and unlocks the value of the combined business segments. In compliance with the Minimum Public Ownership rule, FB filed with the Securities and Exchange Commission a registration statement and preliminary prospectus for a follow-on offering involving the sale 887 million common shares with an overallotment of 133.05 million common shares with an indicative price of P140 per share for a total of P142.8 billion. Upon completion, the follow-on offering will be the largest in the Philippines and will make FB the largest consumer stock and an index component stock of the Philippine Stock Exchange. We believe that there will be strong demand for the follow-on offering since FB is considered as a proxy for the Philippine consumption due to its trusted brand names, broad product portfolio and leading market positions. FB can benefit from the stable economic growth, growing population base and consumer-driven economy. Based on the data compiled by the GlobalData, the household consumption expenditure as percentage of Gross Domestic Product is 73.5% while the addressable food and beverage market size as percentage of total food and beverage industry size is 41.8%. Moreover, FB had set a cash dividend policy of 60% of the annual net earnings, which is higher than the average dividend payout among listed companies. Through the combined business segments, FB plans to expand distribution network, enhance market penetration and increase production capacity to protect traditional markets and conquer emerging markets. But we believe that the follow-on offering indicative price of P140 per share as compared to the share swap transaction price of P79.82 per share is absurd. We do not know the reason why the follow-on offering indicative price was set at 75.4% premium but what we do know is that the underwriters will be forced to adjust it closer to the share swap transaction price to make the follow-on offering saleable to cornerstone investors in the midst of market unrest brought about by geopolitical tensions and macroeconomic headwinds.
