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San Miguel defends deal to acquire cement maker

/ 01:58 AM February 03, 2020

MANILA, Philippines — Conglomerate San Miguel Corp. (SMC) is seeking to discuss antitrust concerns flagged by the Philippine Competition Commission (PCC) in relation to its $2.15-billion deal to acquire the country’s leading cement-maker Holcim Philippines.

In a press statement on Friday night, SMC said it was aware of the concerns raised by the PCC on the proposed acquisition and was committed to achieving a favorable outcome of the review process.

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“We firmly believe that the acquisition of Holcim by San Miguel Corp., a Filipino company, will be beneficial to consumers, the industry and our country’s development,” SMC said.

San Miguel’s controlling stockholder, Top Frontier Investment Holdings Inc., and Holcim Philippines proposed a set of voluntary commitments to the antitrust commission, the PCC said. The commitments were not disclosed.

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Under PCC merger rules, voluntary commitments will be evaluated whether they sufficiently respond to competition concerns identified by the commission’s merger and acquisitions office (MAO).

‘Less competition’

Disclosing the results of its review on Friday, MAO said it believed the buyout by an SMC subsidiary, First Stronghold Cement Industries Inc., of Holcim Philippines would result in a substantial lessening of competition in the market for gray cement in four key areas in the Philippines.

In northwest Luzon, MAO said the merger would eliminate Top Frontier’s only competitor in the area, creating a monopoly in the market for gray cement.

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

Moreover, the transaction would thus increase the likelihood of these companies to engage in coordinated behavior, according to the office.

Posttransaction, MAO is concerned that imports in the relevant markets may be insufficient to constrain the merged parties and that no new players are likely to or can timely counteract the parties’ market power in northwest Luzon.

“Posttransaction, 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,” it said.

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Through First Stronghold, SMC last year signed a deal to buy 85.73 percent of Holcim Philippines, which sells and distributes cement and related aggregates to eight companies in the Philippines.

First Stronghold, a holding company created for this transaction, is wholly owned by San Miguel Equity Investments Inc., a subsidiary of SMC.

The conglomerate is in turn controlled by Top Frontier, which has two cement plants slated to begin commercial operations within the next two years: Northern Cement and Oro Cemento Industries Corp.

The PCC unit included Northern Cement Corp. and Eagle Cement Corp. 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.”

Interlocking officers

It also looked into interlocking officers and directors between Northern Cement and Eagle Cement, and between Eagle Cement and Top Frontier.

In assessing control and influence, MAO also argued that Top Frontier and Northern Cement were reported to have coordinated marketing strategies and were allegedly exerting influence on the board of directors of each other.

“Top Frontier has access to sensitive corporate information of Northern Cement. 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,”it added.

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TAGS: Holcim Philippines, PCC, Philippine Competition Commission, San Miguel Corp.
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