PCC flags San Miguel-Holcim deal for potential monopoly in cement market

The Philippine Competition Commission (PCC) raised antitrust concerns on conglomerate San Miguel Corp.’s $2.15-billion purchase of cement manufacturing giant Holcim Philippines Inc., warning of the potential creation of a monopoly in the industry.

In a statement on Friday, the PCC said its Mergers and Acquisitions Office (MAO) had flagged competition concerns in San Miguel subsidiary First Stronghold Industries Inc.’s planned purchase of 85.7 percent equity interest in Holcim Philippines.

The antitrust body cited “monopoly, increased market power, and potential collusion arising from the merger. “

In its review, the PCC said MAO determined that the buyout by First Stronghold Cement of Holcim Philippines “will result in a substantial lessening of competition in the market for grey cement in four key areas in the Philippines.”

The PCC’s merger review found the following antitrust concerns:

• In Northwest Luzon, the merger eliminates 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 results 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, imports in the relevant markets are insufficient to constrain the merged parties.
• Post-transaction, 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.

First Stronghold forged the deal with Holcim Philippines in 2019 amid the global cement giant LafargeHolcim’s divestments in Southeast Asia, including the Philippines.

The San Miguel unit was 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 has two cement plants slated to begin commercial operations within the next two years —Northern Cement and Oro Cemento Industries Corporation.

“In terms of control, the MAO review included Northern Cement Corp. and Eagle Cement Corp. as part of the Top Frontier group in its market definition and competitive assessment,” the PCC said.

MAO alleged that Top Frontier exercises control and influence over Northern Cement’s policies and operations despite its 35% minority stake shareholding in the latter, the antitrust body said.

The PCC said 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. 
• 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,” the PCC said.

Top Frontier and Holcim Philippines have proposed a set of voluntary commitments before the antitrust commission, it said.

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.

'Beneficial'

San Miguel, for its part, on Saturday said the company's acquisition of Holcim "will be beneficial to consumers, the industry, and our country's development."

"We are aware of the concerns raised by the Philippine Competition Commission (PCC) on the company’s proposed acquisition of Holcim Philippines, and are committed to achieving a favourable outcome of the review process. We firmly believe that the acquisition of Holcim by San Miguel Corporation, a Filipino company, will be beneficial to consumers, the industry, and our country’s development," the company said in a statement. —DVM/KG, GMA News