SMC-Holcim deal to result in monopoly

Published February 1, 2020, 12:00 AM

by manilabulletin_admin


The acquisition of cement firm Holcim Philippines, Inc. by San Miguel Corp.would result in monopoly, increased market power, and potential collusion arising from the merger, according to the Philippine Competition Commission (PCC).

In a Statement of Concerns, the anti-trust body’s Mergers and Acquisitions Office (MAO) has determined that the buyout by SMC subsidiary, First Stronghold Cement Industries, Inc., of Holcim Philippines will result in a substantial lessening of competition in the market for grey cement in four key areas in the Philippines.

Specifically, the merger review reported that in Northwest Luzon, the merger of SMC and Holcim will eliminate Top Frontier’s only competitor in the area, resulting in a monopoly in the market for grey cement.

In Greater Metro Manila, Central Luzon, and Northeast Luzon, the transaction will result in high combined market shares, allowing Top Frontier to control a majority of the supply in these areas.

In Greater Metro Manila, Central Luzon, and Northeast Luzon, the transaction increases the likelihood of firms to engage in coordinated behavior.

Post-transaction, MAO’s PCC has determined that imports in the relevant markets are insufficient to constrain the merged parties.

It also determined that no new players are likely to or can timely counteract the parties’ market power in Northwest Luzon, post transaction.

Any entrant has little to no ability to constrain the exercise of market power of the parties in Greater Metro Manila, Central Luzon, and Northeast Luzon, once the deal pushes through.

It could be recalled that SMC acquired First Stronghold struck the deal with Holcim Philippines last year amid the global cement giant’s divestments in Southeast Asia, including the Philippines.

It is poised to acquire 85.73% or 5,531,566,062 common shares of Holcim Philippines.

Holcim Philippines manufactures, sells and distributes cement and related aggregates with eight cement facilities in the Philippines and is a subsidiary of global cement giant LafargeHolcim Ltd.

First Stronghold, a holding company created for this transaction, is wholly owned by San Miguel Equity Investments, Inc., which in turn is a subsidiary of SMC — all under Top Frontier Investment Holdings, Inc. (Top Frontier). Top Frontier has two cement plants slated to begin commercial operations within the next 2 years: Northern Cement and Oro Cemento Industries Corporation.

In terms of control, the MAO review included Northern Cement Corporation (Northern Cement) and Eagle Cement Corporation (Eagle Cement) as part of the Top Frontier group in its market definition and competitive assessment.

MAO alleged that Top Frontier exercises control and influence over Northern Cement’s policies and operations despite its 35 percent minority stake shareholding in the latter. It also looked into interlocking officers and directors between Northern Cement and Eagle Cement, and between Eagle Cement and Top Frontier. In addition, the following factors were considered in assessing the existence of control and influence, among others:

Top Frontier and Northern Cement were reported to have coordinated marketing strategies and exert influence on the board of directors of each other.
This means Top Frontier has access to sensitive corporate information of Northern Cement.

In addition, it said that sellers, distributors, and hardware owners in the relevant markets viewed Eagle Cement and Northern Cement as “sister companies” and part of the Top Frontier group.

Top Frontier and Holcim Philippines have proposed a set of voluntary commitments before the antitrust commission. Under the PCC’s merger rules, voluntary commitments shall be evaluated by the Commission whether or not they sufficiently address the competition concerns identified by MAO.