Dairy Farm strengthens presence in Philippines

PAN-ASIAN retailer Dairy Farm International Holdings Limited is increasing its presence in the Philippine retail market through the share-swap deal with the Gokongwei-led Robinsons Retail Holdings Incorporated (RRHI) that is expected to be completed in six months.

Dairy Farm ventured into the Philippines, which it described as “one of the most vibrant retail markets in Asia,” with the acquisition in 2012 of a 50-percent stake in Rustan Supercenters Inc., operator of the Rustan’s Supermarket and Shopwise brands, among others.

It increased its shareholdings in Rustan’s to 66 percent in 2015 and further to 100 percent in 2017.

Dairy Farm also acquired a 49-percent stake in Cebu-based drugstore chain Rose Pharmacy Inc. in November 2014, paving the way for the chain’s expansion and upgrading of its stores.

With the share-swap agreement with RRHI, Dairy Farm will end up owning 18.25 percent of the Gokongwei-owned firm.

In a statement, Dairy Farm said the deal will “create a new platform for growth” in the Philippines and “combine strong local knowledge with the international strength and experience of a leading pan-Asian retailer.”

The combined group - of RRHI and Rustan’s Supercenters - “will be one of the top three retailers in the Philippines with over 1,700 stores,” Dairy Farm said.

“We are delighted to be increasing our investment in the fast-growing Philippine food retail sector in partnership with Robinsons Retail and the Gokongwei family. Rustan’s Supercenters and Robinsons Retail are already leading high-quality retailers in the Philippines and we believe that our customers will benefit from being serviced by a larger group that can use its combined strengths and scale to improve competition, quality and value for them. The partnership combines two strong, experienced and talented teams, who will have access to increased future opportunities,” Dairy Farm Group chief executive Ian McLeod said in the same statement.

The transaction requires the approvals of RRHI stockholders, the Philippine Competition Commission and the Securities and Exchange Commission.

When completed in six months, the transaction will give Dairy Farm the right to nominate two directors to the board of RRHI.

Under the share-swap agreement, the Gokongwei-led company will acquire the 100-percent stake of Dairy Farm subsidiary Mulgrave Corporation BV valued at P18 billion in Rustan Supercenters.

Dairy Farm, through Mulgrave, will in turn acquire shares in RRHI representing 12.15 percent of the Gokongwei firm's enlarged share capital at an agreed price per share of P94 for a total value of $346 million (roughly P17.9 billion at current exchange rate).

Dairy Farm will "acquire a further 6.1-percent interest of the enlarged share capital at a cost of $174 million," or P9 billion. Some Gokongwei family members will be selling some of their shares.

"This will give Dairy Farm a total holding of some 18.25 percent. The Gokongwei family, being the controlling shareholders, will continue to hold a 51-percent interest in RRHI after completion of these transactions," Dairy Farm said.

The pan-Asian retailer said it will fund the investment through a combination of existing cash and borrowings.

Rustan Supercenters generated sales of P22 billion in 2017 and operated 12 hypermarkets and 61 supermarkets, “with no material impact to the underlying profit of Dairy Farm.”

RRHI, on the other hand, reported sales in 2017 of P115 billion and operated 1,718 stores in the Philippines, including 154 supermarkets.

Dairy Farm, for its part, reported sales of over $21 billion (over P1 trillion) from more than 7,100 outlets across Asia. The company, a member of the Jardine Matheson Group, is listed on the London Stock Exchange. (Marites Villamor-Ilano/SunStar Philippines)
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