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Conglomerate San Miguel Corp. is no longer moving forward with its $ 2.15 billion acquisition of leading cement maker Holcim Philippines Inc. as the deal expired without obtaining authorization from the Philippine Competition Commission (PCC).
SMC told the Philippine Stock Exchange on Monday that its agreement to acquire 85.73 percent of HPI’s shares dated May 10, 2019, had now expired in accordance with its terms. Completion of the acquisition required PCC approval, which was achieved at this time, SMC said.
Accordingly, SMC has withdrawn the launch of the public offering of HPI shares held by its minority shareholders.
To recall, the PCC raised certain “antitrust” concerns regarding SMC’s $ 2.15 billion deal to acquire the country’s leading cement producer.
Under the PCC’s merger rules, voluntary commitments are evaluated regardless of whether they adequately address the competition concerns identified by the PCC’s M&A office (MAO).
In disclosing the outcome of its review on Friday, MAO opined that the purchase by SMC’s subsidiary First Stronghold Cement Industries Inc. of Holcim Philippines would result in a “substantial decrease” in competition in the gray cement market. in four key areas in the Philippines
In northwest Luzon, MAO said the merger would eliminate Top Frontier’s only competitor in the area, resulting in a monopoly in the gray cement market.
In Greater Metro Manila, Central Luzon and Northeast Luzon, the transaction generates high combined market shares, allowing Top Frontier to control most of the supply in these areas, MAO added. In addition, he believed that the transaction would increase the probability that these companies engage in coordinated behavior.
After the transaction, MAO is concerned that imports in the relevant markets may be insufficient to restrict the merged parties and that no new player can or can timely counterbalance the market power of the parties in Northwest Luzon.
“After the transaction, any participant has little or no ability to restrict the parties’ exercise of market power in the Greater Manila Metro, Central Luzon and Northeast Luzon,” MAO had said.
Through First Stronghold, SMC last year signed an agreement to buy 85.73 percent of Holcim Philippines, which sells and distributes cement and aggregates related to eight cement plants in the Philippines.
First Stronghold, a holding company created for this transaction, is the exclusive property of San Miguel Equity Investments Inc., which in turn is a subsidiary of SMC. The conglomerate is in turn controlled by Top Frontier, which has two cement plants slated to begin commercial operations in 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 evaluation.
MAO had alleged that Top Frontier “exercises control and influence over Northern Cement’s policies and operations despite its 35 percent minority shareholding in the latter.” It also examined the agents and directors intertwined between Northern Cement and Eagle Cement, and between Eagle Cement and Top Frontier.
In evaluating control and influence, MAO had argued that Top Frontier and Northern Cement were reported to have coordinated marketing strategies and were allegedly influencing each other’s board of directors.
Top Frontier has access to Northern Cement’s confidential corporate information. Eagle Cement and Northern Cement were seen by vendors, distributors and owners of hardware in relevant markets as “sister companies” and part of the Top Frontier group, “he said.
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