Universal Robina Corp. (URC) has dropped plans to acquire its only rival in sugarcane milling services in Southern Luzon.
This, after the country’s antitrust body blocked the Gokongwei-led company’s move to take over the only other sugar milling firm in Batangas. The Philippine Competition Commission said the deal would have made URC a monopoly at the expense of sugarcane planters.
“The prohibition prevents this deal from creating a monopoly in the relevant market that could harm the welfare of the sugarcane planters,” PCC Chair Arsenio Balisacan said.
The deal involves URC’s proposed acquisition of Central Azucarera Don Pedro, Inc. (CADPI), a subsidiary of the country’s largest integrated sugar business and the biggest ethanol producer, Roxas Holdings, Inc.
In a statement, URC said it was accepting the PCC decision, while clarifying this would not materially affect its business plans as a leading food and beverage company in the country.
“URC accepts the PCC decision and affirms its commitment and support to the efforts of government for a strong market economy,” it read.
The decision was issued on Tuesday, after months of scrutiny and discussion that began middle last year.
Under the Philippine Competition Law, mergers and acquisitions need to be reviewed by the PCC if they meet certain standards, such as when the value of the assets of the acquired entity is worth more than P2 billion.
The PCC started reviewing the URC deal in July, then flagged it for anticompetitive concerns in October. The parties voluntarily made commitments, which were deemed not enough to address the red flags raised.
“A merger-to-monopoly deal is among the most detrimental types of business transactions. The URC takeover removes its only competitor, erodes the benefits of competition for the sugarcane planters, and leaves market power at the hands of a single provider in an area,” Balisacan said.
URC wanted to acquire the milling and refining assets of CADPI, including the land on which the milling and refining assets are situated, according to a previous PCC statement.
The PCC said the deal would have created market power for URC, allowing it to “unilaterally reduce the planters’ share in the planter-miller sharing agreement, the theoretical recovery rates quoted to planters, and the incentives provided to planters.”
Furthermore, the resulting market power couldn’t be easily constrained. The PCC noted sugar mills outside of Batangas, such as in Pampanga and Tarlac, are “too far.”
Also, barriers to entry for new players were high, it added. Even in the remote possibility that a new player enters, this still won’t be enough to keep URC from exercising early on its market power after the deal, the PCC said.
The antitrust body said the sugar processed from the facilities involved serve nationwide demand, including that of Metro Manila.
The PCC added the monopoly would “substantially lessen competition” not only in Batangas, but also in Cavite, Laguna and Quezon.
URC said it would continuously look for opportunities to attain greater production efficiency and provide quality products at affordable prices to consumers.
“URC initiated the proposed acquisition of CADPI with that objective mind, convinced that it would bring about such efficiencies that would translate to better sugar planter and consumer welfare driven by a more stable and profitable sugar production industry in Southern Luzon,” it said.
Roxas Holdings, for its part, only acknowledged receipt of the decision in a stock market disclosure.