Southeast Asian conglomerate First Pacific, which controls the Philippines' largest telephone company and the world's largest noodle maker, will review its expansion strategy if it fails to make a 'transformational acquisition' by 2009.
If there is no such acquisition, the company may consider giving money back to shareholders or buying back some of its outstanding stock.
Managing director Manuel Pangilinan said yesterday the group aimed to finalise 'one or two transformational acquisitions' in the next 18 months in areas of toll roads, electricity generation, water supply, food manufacturing, telecommunications and health care in the mainland and Southeast Asia.
Mr Pangilinan said such acquisitions would sow the seed for the group's profit growth in the long run, which was more crucial than what he dismissed as the 'financial quick fix' of buying back shares.
The company has been under pressure from major institutional investor Marathon Asset Management to boost its stock price by buying back shares instead of spending on acquisitions.
The London fund, which owns 6 per cent of First Pacific, argued in a letter to shareholders last month that 'acquisition growth only benefits value to the extent that we buy cheaply, now an unlikely outcome six years after the end of the Asian crisis'.
The company had rejected the suggestion outright. But yesterday Mr Pangilinan said: 'We will review the strategy if no transformational acquisitions are executed in the next 18 months.'
The fund blamed the company's recent acquisition spree for the shares' discount to their net asset value. It has narrowed this year, to 18 per cent based on yesterday's closing price of HK$5.60 and last year's net asset value of HK$6.83 per share, from 40.8 per cent as of December 31 last year. A Goldman Sachs research report forecast the net asset value discount would shrink to between 20 pe cent and 25 per cent on the assumption that the group invests in high-quality, unlisted companies with good prospects.
First Pacific said it was examining acquisition opportunities that would contribute to its bottom line instantly and with an internal rate of return of at least 20 per cent.
Leveraging on its dominance in the Philippine phone market, First Pacific was exploring investment opportunities in Hong Kong's competitive telecommunications market, Mr Pangilinan said.
'The buoyancy in the stock markets raises asset prices and we won't bid for assets at high prices,' he said.
With gearing of 77 per cent at the end of last year, First Pacific would tap the debt market for fresh funds if necessary, he said.
A Thomson First Call poll showed a consensus forecast of 7.8 per cent profit growth to US$177.33 million for the group this year with turnover increasing 4.26 per cent to US$2.58 billion this year.