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San Miguel strikes deal for Malaysian oil assets

Posted on August 18, 2011

SAN MIGUEL CORP. has sealed a deal to take control of three Malaysian businesses owned by oil giant Exxon Mobil Corp. (ExxonMobil) for $610 million, the conglomerate yesterday announced.

Following wire reports that an agreement had been reached, San Miguel issued a statement saying that its board of directors had approved the purchase of publicly traded Esso Malaysia Bhd, where ExxonMobil has a 65% stake, and wholly owned ExxonMobil Malaysia Sdn Bhd and ExxonMobil Borneo Sdn Bhd.

The three companies are involved in the refining, distribution and marketing of petroleum products in Malaysia, holding assets such as the Port Dickson refinery that has a rated capacity of 88,000 barrels per day (bpd), seven fuel distribution terminals and approximately 560 branded service stations.

In Kuala Lumpur, Esso said San Miguel had offered to buy ExxonMobil’s 65% stake in the oil refiner for 614.3 million ringgit ($206 million). A $404-million offer was also made for the two other companies, it added.

San Miguel, which has been diversifying from its traditional food and beverage business to areas such as infrastructure, telecommunications and energy, will see its exposure to the oil business expand once the deal is finalized. It already controls Petron Corp. in the Philippines.

"ExxonMobil’s Malaysian downstream business is attractive to San Miguel given that there is plenty of room to move up the value chain by upgrading refinery capabilities," San Miguel President and Chief Operating Officer Ramon S. Ang said in the statement.

"Our plan would be to upgrade the Port Dickson refinery so that it can make use of a wider variety of crudes, and produce higher-value products." Mr. Ang added.

San Miguel said US-based ExxonMobil wanted to focus on upstream, chemicals, lubricants and global business support operations in Malaysia that were not affected by the deal.

ExxonMobil has been actively reviewing its Asian assets and earlier this month it agreed to sell its stake in three companies associated with the Indonesian gas and liquefied natural gas business.

Thai Oil was said to be also interested in buying ExxonMobil’s Esso in Thailand.

The 3.50 ringgit per share price paid by San Miguel for Esso Malaysia is a steep 29% discount to its closing price of 4.95 ringgit. The firm’s market cap on Wednesday was about 1.17 billion ringgit ($392.55 million) and Exxon’s 65% stake valued at about 760 million ringgit.

"This acquisition provides us with a unique opportunity to expand our participation in the regional oil and gas sector, and we will focus our efforts not just on upgrading refinery capabilities, but expanding reach into underserved areas in the fuels market," Mr. Ang said.

"We are committed to investing in the business, and providing the best products and services to Malaysian consumers."

Reuters yesterday quoted a source with direct knowledge of the deal as saying, "San Miguel won the bid because it was the highest bidder and was willing to invest in Esso’s refinery to bring it up to speed."

The Port Dickson refinery, located on the west coast and built in the 1960s at an initial cost of 50 million ringgit, averaged 45,000 bpd in 2010, according to the company’s 2010 annual report.

The source said the investment by San Miguel would allow the refinery to process other types of products. The facility presently produces a range of products including gasoline, diesel, liquefied petroleum gas, jet fuel, kerosene and low-sulfur waxy residue.

Cash-rich San Miguel earlier this week said it had received proceeds worth P13 billion ($306.7 million) from a share purchase deal covering a portion of its stake in Manila Electric Co.

It sold the unit to its food arm, San Miguel Pure Foods, giving the parent firm fresh funds for new acquisitions.

San Miguel common shares fell by 1.34% or P1.70 to P125 yesterday, from P126.70 on Tuesday, ahead of the Malaysian deal’s confirmation. -- reports from F. J. G. dela Fuente and Reuters