Pure Foods to Form New Company with Hormel Foods USA

November 13, 1998 PSE CIRCULAR FOR BROKERS NO. 2587-98 Pure Foods to Form New Company with Hormel Foods USA Publicly listed Filipino food conglomerate Pure Foods Corporation is set to form a new company with longtime partner, U.S.-based food grant Hormel Foods Corporation. The documents, serving notice of the memorandum of understanding between the two companies, were filed before the Philippine Securities & Exchange Commission (SEC) today. The landmark pact was inked between Renato R. Montemayor, president of Pure Foods Corporation and Ron W. Fielding, president of Hormel Foods International Corporation (HFIC). The processed Meats Division of Pure Foods will be spun off to form the new company. Subject to the approval of each party's Board of Directors and any necessary government consent, a joint-venture agreement will then be signed to pave the way for the establishment of the new company, to be known as "The Purefoods-HFC Company", which will be operational by January 1, 1999. The move is expected to further consolidate Pure Foods' market-dominant position in processed meats and related lines. LLphil On a macroeconomic level, the joint-venture is significant affirmation of the strengthening of the Philippine economy and rising foreign-investor confidence in its stability. Pure Foods Corporation, a member of the Ayala Group of Companies, has food and food-related operations that encompass processed meats manufacturing, flour, food service, poultry, livestock, and feeds as well as restaurants (through the Smokey's and BURGER KING brands.) The Pure Foods-Hormel agreement is the latest offshoot of Pure Foods' strategy to form alliance with world-class food companies. Pure Foods has, to date, forged similar agreements with Myojo Foods/Mitsui for instant noodles, Burger King for quick-service restaurants, as well as two companies in Indonesia the Hero Group for the production of processed meats, and the Sinar Mas Group for tuna canning. The present joint venture agreement will, in effect, spin off the company's Processed Meat Division into a separate entity, over which Pure Foods Corporation will maintain 60% control. Hormel Foods International Corporation (HFIC), a wholly-owned subsidiary of Hormel Foods Corporation, will have the balance of 40% of shares. LLjur Hormel Foods is one of America's most dynamic food companies, with well-entrenched branch names in fresh processed meats and canned grocery products worldwide such as SPAM , Hormel Black Label Ham, and Dinty Moore beef stews as well as expanding market in frozen convenience, ethnic, and international food. Hormel Foods, which first invented canned hams, remains the U.S. market leader in this category, as well as in canned chili, pepperoni and others. Total turnover in 1997 amounted to $3.3 Billion, with net earnings totaling $109 million. Pure Foods president Renato R. Montemayor said, "The partnership is expected to be a landmark alliance that will bring strategic capital investments and accelerate technology transfer to the Philippines' foremost food company. It will broaden the maker base for both companies, particularly bringing export potential to foreign markets for many of Pure Foods' own innovative, world-class product lines." At present, Hormel Foods exports its products to more than 40 countries in Europe, South America and Asia. In 1997, Pure Foods posted significant gains in both sales turnover and net income, as revenues registered 8.6% growth to reach P8.8 billion, while net income reached P158 Million, despite the slump in the Philippine economy 1998 promises to be an even more profitable year, with recurring profits expected to increase by 20%. The Processed Meats Division is the company's largest contributor to both sales and profits. It maintains clear market leadership in hotdogs, hams, bacons, and cold cuts, accounting for 47% of the total refrigerated meats market of the country today. Pure Foods Processed Meats have likewise maintained overall leadership in the canned goods category, despite increased competition. A superior distribution network as well as a discerning understanding of Filipino market needs has kept Pure Foods a frontrunner in its fields of expertise. Cdphil Pure Foods is subsidiary of Ayala Corporation with direct ownership of 86.7%. Its parent company has evolved into the country's largest and most widely diversified conglomerate with total consolidated assets of P121 billion as of September 1998.