MANILA, November 1, 2004 (STAR) By Zinnia De La PeŃa - In line with its vision of becoming a major logistics and trade hub in Southeast Asia, food and beverage giant San Miguel Corp. (SMC) is reportedly training its sights on Hacienda Luisita Inc., the 6,000-hectare estate in Tarlac owned by the family of former President Corazon Aquino. Sources said SMC is seriously considering acquiring a majority stake in Hacienda Luisita, which is suffering from cash problems because of a sharp drop in the global price of sugar and the lack of fresh capital to sustain operations.

The 6,000-hectare plantation could house the raw materials needed for the manufacture of SMC’s various products, sources said. The estate covers 10 barangays in Tarlac City.

Sources said SMC is now conducting due diligence on Hacienda Luisita and is willing to spend as much as P5 billion to acquire a controlling stake in the cash-strapped estate.

SMC officials could not be contacted for comment.

Two years ago, SMC bared plans of putting up a logistics company to diversify its revenue base and optimize the distribution network of its products all over the country and eventually in the region.

With more than 300 products to distribute across the Philippines, SMC recognizes logistics as a vital cog in its business.

Because of the complexity and difficulty of delivering finished goods in the Philippines, the cost of distribution makes up a large part of the company’s total product cost.

SMC is currently studying an e-commerce strategy, with which it aims to capture the next generation of consumers.

With over 500 dealers available at its disposal, SMC aims to become a powerhouse in logistics such that companies wanting nationwide presence must deal with SMC.

In this regard, SMC envisions an agro-industrial/ecological estate, which will allow the integration of all production activities, thereby lowering distribution and transfer costs.

The venue for the estate has not been finalized although SMC noted that it must be near the biggest market in Luzon and that it must be near the sea as SMC will also build its own port.

This level of integration is yet unseen in the Philippines, which SMC can use to position itself as the trade hub in the region.

An analyst at a local brokerage house, who declined to be identified, said the acquisition of Hacienda Luisita makes sense as this would complement SMC’s plan to establish a logistics complex.

He, however, noted the fact that while SMC chairman and chief executive officer Eduardo "Danding" Cojuangco and Mrs. Aquino are cousins, they were political enemies during the Marcos dictatorship.

Cojuangco was a close Marcos ally while Aquino led the opposition that toppled Marcos in 1986 by a popular uprising.

Hacienda Luisita, the company put up in the late 1980s as a model of corporate farming, is projected to incur losses of P136 million this year and could face bankruptcy unless it secures fresh capital.

During the 2002-2003 cropping season, Hacienda Luisita suffered a P215-million loss as sugar prices continued to drop from P873.44 a 50-kilo bag to P791.49.

Hacienda Luisita farm manager Ricardo Lopa Jr. said the company would undertake major changes to stay afloat. The company already laid off some 300 workers as part of its cost-reduction strategy.

Hacienda Luisita was formed through the stock distribution option of the Comprehensive Agrarian Reform Law on May 11, 1989, upon agreement with the Aquino family, the Tarlac Development Corp. and Hacienda Luisita farmers.

It employs at least 5,000 people from within the city and neighboring towns.

Reflecting a bullish attitude on the struggling Philippine economy, SMC recently announced a P15-billion capital expenditure program to finance the expansion of production facilities all over the country from 2004 to 2006.

A significant portion of SMC’s expansion will be in the countryside, helping generate employment and livelihood particularly in the rural areas.

Of the P15 billion, P5 billion has been earmarked for the establishment of food facilities alone.

SMC will put up feed mill plants in Bataan and Misamis Oriental, a broiler farm in Bulacan, as well as hog farms in Bukidnon and Tarlac, where it is also setting up a pet food plant and a veterinary medicine facility.

SMC will likewise establish an industrial park in Laguna, the complex that will host the company’s manufacturing plants for value-added food products.

SMC is scheduled to inaugurate this year its Pure Foods Hormel plant in Cavite as well as two Pure Foods facilities in Batangas, a flour mill and flour blending facility.

Apart from this, SMC is expanding and modernizing its breweries in Polo, Valenzuela and in San Fernando, Pampanga.

In Negros Occidental, a project is set to expand the capacity of the Distileria Bago of SMC’s liquor unit, Ginebra San Miguel Inc.

Site development, meanwhile, is nearing completion for another alcohol distillery at a Phividec site in Mindanao.

Moreover, SMC is pursuing highly integrated agro-industrial zones as its growth model.

Once in full operation, these zones will link with the conglomerate’s manufacturing and distribution channels that are being reengineered to ensure the lowest possible cost for the company’s products.

SMC is one of Southeast Asia’s leading food, beverage, and packaging company and the dominant player on the domestic market.

However in recent years stagnant sales have led the company to look overseas in an attempt to reignite growth within the group.

Reported by: Sol Jose Vanzi

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