P6.6-B deal for 31.7% stake held by Chelsea Logistics priced at P8.50 a share
Property, banking and retail conglomerate SM Investments Corp. is gaining control of 2Go Group Inc. after buying out its strategic partner, Davao-based businessman Dennis A. Uy, in what was described as a “win win” deal for both sides.
Four years after taking a minority position in 2Go, the Sy family’s SM will own more than 62 percent of the 72-year-old logistics group, a stock exchange filing on Friday showed.
SM is buying the 31.7-percent 2Go stake held by Uy’s Chelsea Logistics and Infrastructure Holdings Corp. for P8.50 a share or about P6.6 billion. The companies expect to complete the sale in three months, including the mandatory buyout offer to minority shareholders.
SM is betting big on logistics, a powerful economic driver and a crucial business in an archipelago such as the Philippines.
Big relief
At the same time, the deal cuts Uy’s financial losses in 2Go and provides relief to his group from significant interest payments after a period of rapid, debt-fueled expansion that started after President Duterte won in 2016.
Chelsea said on Friday the proceeds of the sale would be used to pay the loan it took to buy 2Go in 2017.
Chris Mangun, research head at stockbrokerage firm AAA Equities, said the transaction was beneficial for the companies and a timely preemptive move on Chelsea’s part to shore up its balance sheet.
“The problem is no one expected the economic fallout from the COVID-19 pandemic to take this long. Uy’s group is scaling back because they were really aggressive with all their acquisitions two to three years ago,” he told the Inquirer.
Despite the pandemic-induced recession inflicting severe losses on the sector, 2Go remains a leading name in logistics, providing cargo and passenger shipping, warehousing distribution and courier services.
2Go is currently led by SM director Frederic DyBuncio as president.
Favorable price
“SM is one of the biggest clients of 2Go in terms of shipping and they realize there is a lot of growth in this sector,” Mangun said.
Mangun said Uy was also getting a good price since Chelsea was selling 2Go at close to its prevailing market value. This was despite 2Go’s losses widening 340 percent to P1.84 billion in 2020 due to the pandemic.
The close business alliance between the Sys and Uy likely played a role here, he said.
Those ties stretch back years when SM’s banks extended support to Uy when he was expanding independent fuel retailer Phoenix Petroleum Philippines Inc. and his other companies.
SM’s BDO Unibank Inc. and China Banking Corp. remain key lenders of Chelsea and 2Go.
Uy said on Friday the sale lowers losses for Chelsea and the business could see a turnaround once more vaccines were rolled out.
“Things are still very challenging but with the vaccination, recovery should be around,” Uy told the Inquirer in a text message.
Chelsea, the shipping and logistics arm of Uy’s Udenna Group, recorded losses of P367.2 million from its 2Go stake as of September last year.
The company lost P2.6 billion during the same period, reversing profits in 2019, because of the pandemic.
Chelsea’s interest payments for debts have also be rising. These hit P986.1 million as of September last year. Obligations amounted to P850.9 million in 2019, up 87 percent from the previous year.
Chelsea shares rose 4.49 percent to P3.72 each on Friday while 2Go lost 2.9 percent to P9.37 a share. SM declined 2.89 percent to P958.50 a share.
Article and Photo originally posted by Inquirer last March 20, 2021 9:49am and written by Miguel R. Camus.
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