Japan's second-largest brewery, Kirin Holdings Co, plans to buy a 43.25-per cent stake in the beer unit of Fillipino food and beverage giant San Miguel Corp, in a deal that could cost more than 59 billion pesos ($1.26 billion). San Miguel told the stock exchange yesterday it had signed a memorandum of understanding with Kirin for its potential investment in San Miguel Brewery, Inc, the local beer leader.

San Miguel said it is looking to unload large stakes in some of its units to settle debt and fund expansion. The move is in line with the company's policy of reducing stakes in the beverages business in favour of expanding in high-growth areas like mining, infrastructure and utilities.

A final agreement will be completed by the end of February.

"As a policy, San Miguel will sell shares in all operating companies and just keep 51 per cent consolidated control," said Ramon Ang, the president of the Philippines' largest food-and-beverage conglomerate by sales. San Miguel Brewery Inc shares rose the most in Manila trading since May after the announcement, even as the main Philippine Stock Exchange Index fell.

According to experts, a stake sale to Kirin will unlock the value of San Miguel's beer business, as well as provide the opportunity for San Miguel Beer to be more aggressively marketed in Japan and in other areas that Kirin is active. Kirin shares rose 0.7 per cent in Tokyo after the deal.

The San Miguel stake would be the Japanese drinks maker's fourth overseas acquisition in a year as it seeks to counter slowing beer sales at home. The deal would give Kirin direct ownership in the biggest brewer in the Philippines and advance Kirin president Kazuyasu Kato's strategy of boosting overseas sales to 30 per cent of revenue by 2015. San Miguel has sold assets, including its Australian beverage unit to raise cash to invest in energy and mining.

''Kirin is interested in the Philippines' beer market, not in mining, so this makes a lot of sense,''  said a Tokyo-based analyst. ''It fits with Kirin's aim of expanding in growing Asian markets.''

In August, Kirin said it planned to spend 300 billion yen ($3.31 billion) on acquisitions to maintain growth. The company earned about 16 per cent of sales overseas in 2007. Its overseas acquisitions in the past year include Australia's Dairy Farmers for A$675 million ($455 million), increasing its stake in Australian beermaker Lion Nathan Ltd, and buying out its partner in a Chinese brewery.

It also acquired Australian dairy and fruit juice maker National Foods from San Miguel in 2007.

With 11.4 billion pesos in sales in the third quarter last year, San Miguel controls 95 per cent of the Philippine beer market. The company completed a 6.16-billion peso initial public offering in April.

The Royal Bank of Scotland is advising San Miguel in the current transaction.

Kirin's purchase would continue the recent overseas expansion of Japanese foodmakers as a declining birth rate reduces potential customers at home and a stronger yen makes foreign acquisitions less expensive. Asahi Breweries Ltd, Japan's top-selling beermaker, last month agreed to buy Cadbury Plc's Australian beverages unit for A$1.185 billion ($804 million), while Suntory Ltd. bought Groupe Danone SA's Australia and New Zealand drinks unit Frucor in October.

San Miguel diversification
Meanwhile, San Miguel  plans to add more power utilities to its fold. It told the Philippine Stock Exchange yesterday that its wholly-owned unit San Miguel Energy Corp has notified the government its intent to bid for the 620-mw combined-cycle power plant in Limay, Bataan.

The government, through the Power Sector Assets and Liabilities Management Corp. (PSALM), has lined up the Bataan power plant and other generating assets of the National Power Corp. (Napocor) for privatisation this year.

Founded as a brewery in 1890, San Miguel has dominated the Philippine market for beer, dairy products, processed food, grains and poultry. Faced with a maturing domestic beer market, it went on a buying spree in Asia during the past several years, spending around $2 billion, in efforts to boost profitability.

With a cash vault beefed up by a series of asset sales, San Miguel acquired last December a 27 per cent stake in Manila Electric Co (Meralco), the largest power utility in the country. In December 2008, the conglomerate signed an option agreement with UK-based fund manager Ashmore Group to acquire up to 50.1 per cent stake in giant oil refiner Petron Corp.

Company president Ramon S Ang said the group remains on the lookout for opportunities in the power sector, particularly in geothermal energy development, despite previous failed attempts to acquire the assets of the National Transmission Corp and the government's 60 per cent shareholdings in PNOC-Energy Development Corp.

Aside from PNOC-EC, the San Miguel group is also interested in acquiring three major geothermal assets to be auctioned off by the government, which include the 192.5-mw Palinpinon geothermal plant located in Negros Oriental.

San Miguel also announced last year that it would explore an alliance with Indonesia's PT Bumi Resources, which owns the world's largest thermal coal exporter, Kaltim Prima Coal. Further, the diversifying group also expects to shell out about P32.2 billion to exercise its option to buy a unit of British fund Ashmore that owns the controlling stock in the oil refiner and retailer Petron Corp.

However, that deal is under a bit of a cloud. The Philippine Stock Exchange (PSE) had earlier threatened to sanction San Miguel for failure to provide material information on the option agreement. According to sources, even the additional disclosures made since then may not be enough to satisfy the PSE.