Eagle Cement acquisition seen likely to go through

MINORITY shareholders of Eagle Cement Corp. are likely to accept the tender offer from San Miguel Corp. (SMC), a credit research provider said, paving the way for the consolidation of two companies led by businessman Ramon S. Ang.

“In general, if indeed SMC’s planned transaction of purchasing an 88.5%-stake in Eagle Cement will not be subject to review by the PCC (Philippine Competition Commission), then it is likely the transaction could go through,” CreditSights Asia-Pacific Corporates Analyst Rohan Kapur said in an e-mail.

The acceptance from minority shareholders is likely “considering the 43% premium to the value of shares, over the share price before the proposed deal was announced, offered to the major shareholders,” he added.

Earlier this month, Eagle Cement’s majority shareholders agreed to sell their holdings to San Miguel Equity Investments, Inc. (SMEII), a unit of SMC.

CreditSights earlier said the acquisition of an 88.5% stake in Eagle Cement might be blocked by the antitrust watchdog, which it said previously blocked a planned acquisition by SMEII of Holcim Philippines, Inc. It said, “a similar outcome may be possible here.”

According to Mr. Kapur, the PCC review was the main concern for the transaction to go through, and receiving the notice from the commission is likely to see the acquisition push through.

Mr. Kapur said the board of SMC has approved the transaction, “and with the PCC green light, there should not be significant hindrances for the deal to go through.”

In a disclosure to the Philippine Stock Exchange, SMC said it received a notice from the PCC on Oct. 27 which said that the acquisition is not subject to the notification requirement under its implementing rules and regulations (IRR).

SMC said that with the issuance, “the transaction shall not be subject to review by the PCC based on the IRR of [the] Philippine Competition Act.”

It added that the next step would be the completion of a mandatory tender offer of SMEII for the acquisition of 11.5% equity interest in Eagle Cement.

“SMC would now need to proceed to make a mandatory tender offer for the remaining 11.5% of Eagle’s shares, which are not owned by Ramon Ang and his family,” Mr. Kapur said.

He said the acquisition would “roughly double SMC’s cement production capacity.”

SMEII and its three subsidiaries have a cement production capacity of 9 million metric tons per annum (mmtpa). If the acquisition pushes through, Eagle Cement’s plant in Bulacan will add 8.6 mmtpa to SMC’s total cement production capacity.

“The acquisition will also create synergies with SMC’s growing infrastructure business, where it is developing various arterial expressways across Luzon, as well as the mega New Manila International Airport,” Mr. Kupar added.

Mr. Kupar said that based on Eagle Cement’s first-half results, SMC could expect its consolidated revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise by 2% and 4%, respectively.

“Eagle’s acquisition will add a not-so-material contribution to SMC’s existing revenues and EBITDA, according to us,” he added. — Justine Irish D. Tabile