Indocement splits from Indofood to better position

JAKARTA (JP): Anthony Salim, chief executive officer of Indocement, said Wednesday the company had sold its 50.1 percent share in Indofood so that the cement giant could concentrate on its core business.

Anthony said the separation of Indofood from Indocement would also improve the ability of the investing public to better understand the business of the two separate entities.

"In addition, the management of the companies would be able to focus directly on their own operations and core competence," he said.

Indocement said the company now intended to strengthen its leading market position while leveraging its competitive advantage as the industry's lowest-cost cementmaker.

Under the massive deal announced Tuesday, Indocement's 50.1 percent in Indofood will be sold to Singapore-based QAF Ltd, which is 70 percent owned by the Salim Group, and to the Sampoerna family, with a combined transaction value of Rp 4.68 trillion (about US$1.95 billion).

QAF will buy 39.56 percent while Sampoerna will take the remaining 10.54 percent.

Analysts welcomed the planned internal deal, saying the Indocement's separation from Indofood was a positive sign for the company's future expansion.

"With the separation, Indocement will have more leeway to carry out its cement business," one analyst said.

The analysts said Salim Group's streamlining proposal was good for investors as this would make business assessments much easier.

"At present, Indocement looks like a combined entity of food and cement," he said "If the deal is approved, investors will view Indocement just as a cement producer, not a combination of the two."

Indocement said earlier the company was currently constructing a new plant in Citereup, with a total investment of $229 million and scheduled to be operational in mid-1999.

The company is also constructing a cement plant in South Kalimantan with a total investment of $499 million.

Some analysts, however, said the deal could have a negative impact on Indocement's price performance in the market.

"Indocement's profit could decline with the separation from its profitable food business," one of the them said.

Besides that, he said, cement oversupply would continue to last until 2003 and in turn this could have a negative impact on Indocement.

On Wednesday, Indocement's share price gained Rp 25 to close at Rp 4,825 on a total volume of 13.91 million shares changing hands on regular market, while Indofood shed Rp 50 to close at Rp 5,400 on a total volume of 42,500 shares.

An analyst said Wednesday that the current market price for Indocement was overvalued and therefore the company's share price was likely to decline in the coming years.

"I think a fair share price for Indocement is around Rp 3,300," one analyst said. (aly)