San Miguel Corp’s purchase of cement maker Holcim Philippines was likely to lead to higher prices and fewer choices in some areas of Luzon, according to an office under the Philippine government’s antitrust body which flagged the largest takeover deal in the local cement industry.
The Mergers and Acquisitions Office (MAO), released on Friday (Jan. 31) after trading hours a statement of concern on SMC’s proposed acquisition of Holcim.
The MAO is under the Philippine Competition Commission but works independently from it to review mergers and acquisitions that are considered harmful to competition.
The takeover deal involved First Stronghold Cement Industries Inc., an SMC subsidiary, which in 2019 struck a deal to buy 85.73 percent of shares of Holcim for more than $2 billion.
In its review, the MAO said the takeover would substantially lessen competition in four key areas— Northwest Luzon, Greater Metro Manila, Central Luzon, and Northeast Luzon.
If the deal pushed through, imports wouldn’t be enough to have any competitive constraint on the merged companies.
In Northwest Luzon, for example, the buyout of Holcim would mean that Top Frontier would no longer have any competitor in the area, creating a monopoly in the market for grey cement.
Moreover, the deal will result in a high combined market share, allowing Top Frontier to control a majority of the supply in Greater Metro Manila, Central Luzon, and Northeast Luzon. They will also more likely engage in a “coordinated behavior,” the PCC-MAO said.
After the deal is done, there won’t be any new player that can likely or timely counteract Top Frontier and Holcim’s market power in the four combined areas.
In its review, the MAO had included Ramon Ang’s Northern Cement Corp. and his Eagle Cement Corp. as part of the Top Frontier group. Top Frontier is the largest shareholder of SMC.
The MAO claimed that Top Frontier exercises control and influence over Northern Cement’s policies and operations despite its 35 percent minority stake shareholding in Northern Cement.
It also looked into interlocking officers and directors between Northern Cement and Eagle Cement, and between Eagle Cement and Top Frontier.
On top of these, other factors were also considered, like Top Frontier and Northern Cement allegedly having coordinated marketing strategies and exerting influence on the board of directors of each other.
The MAO also claimed that Top Frontier has access to sensitive corporate information of Northern Cement.
The MAO 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.
The PCC and the parties are currently in talks for the parties’ voluntary commitments, which refer to proposed compromises that would address the PCC’s competition concerns.
SMC has not yet responded to a request for comment as of late Friday (Jan. 31) night.
Holcim said in a statement that it continues to cooperate with the PCC to address the concerns regarding the acquisition.
“We remain confident that we can mitigate any competition law concerns and we look forward to PCC’s approval of this transaction in due course,” said the company, a subsidiary of Swiss cement giant LafargeHolcim Ltd.