ELEVENTH-HOUR RESCUE OR JUST ANOTHER SWEET DEAL? (int'l edition) The Salims have long had a stake in First Pacific Co., but the Hong Kong group was always a satellite to the Indonesian star. Now, it may be called on to help save the Salim Group's core operations by taking control of another subsidiary, Indofood Sukses Mukmar. Indonesia's disintegration has slammed Indofood's stock price, depressing it 95% and making it a lot cheaper to acquire than a year ago. Making it cheaper still is Indofood's $1 billion in foreign-denominated debts, which Indofood has been struggling to service since the rupiah's fall. A possible deal would have First Pacific, which the Salims control with a stake of 54%, use some of its $900 million cash hoard to purchase Indofood and pay down some of its debt. HURDLES TO CLEAR. Such a transaction would be a test for Hong Kong's regulators as well as a huge piece of financial engineering. For starters, with creditors circling, the Salims can't simply hand Indofood to First Pacific in a sweetheart deal that lets First Pacific pay less than fair market value. Nestle and Unilever have expressed interest in Indofood, while the Australian Wheat Board is eyeing its milling operations. Some of the bidders ''have put attractive numbers on the table,'' says First Pacific Managing Director Manuel V. Pangilinan, who adds that ''it's going to be tough'' for First Pacific to buy Indofood. Also, according to Hong Kong regulations, First Pacific's minority shareholders must first approve the transaction because it involves buying assets from a controlling shareholder. If these outside investors smell something funny about the deal, they can vote it down. It would also need approval from an independent investment bank. In the past, that's been little more than a formality but in the current environment, any such transaction would be subject to microscopic scrutiny. Analysts are hoping that the Salims will avoid doing anything that might hurt First Pacific's value. ''This is one of their jewel assets right now,'' says Bear Stearns Asia analyst Scott Benesch. ''They'd be foolish to mess with it.'' Yet Pangilinan says First Pacific may end up with more independence, as the restructuring of the Salim empire may cut the family's share to below 50%. First Pacific might also benefit from an Indofood acquisition. ''The prospects for Indofood remain attractive'' says Pangilinan. He cites higher sales volumes for the company's core instant-noodles business as evidence that Indofood can survive the current economic bust. Indofood makes 90% of Indonesia's noodles, and sales are increasing as people opt for them as a cheaper alternative to rice. And Pangilinan downplays the loss of Indofood's monopoly privileges, claiming that government subsidies it used to receive were not the key to Indofood's success. Instead, its distribution system gives it a huge headstart over any new competitors. It still has strong operating margins of 26%, even though debt servicing has wiped out net profits. A steady moneymaker like Indofood could do wonders for First Pacific's bottom line. But first, Pangilinan has to convince shareholders and regulators that the deal is in everyone's best interests. By Mark L. Clifford in Hong Kong Return to main story

Updated Sept. 17, 1998 by bwwebmaster
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