PCC blocks sugar mill merger
Credit to Author: TYRONE JASPER C. PIAD| Date: Thu, 14 Feb 2019 16:25:49 +0000
URC takeover of Batangas rival to create monopoly, harm planters – competition authorities
Competition authorities have rejected Universal Robina Corp.’s (URC) bid to take over Roxas Holdings, Inc.’s (RHI) Central Azucarera Don Pedro Inc.(Cadpi), ruling that the deal would lead to a monopoly in the Southern Luzon sugar market.
“A merger-to-monopoly deal is among the most detrimental types of business transactions,” Philippine Competition Commission (PCC) Chairman Arsenio Balisacan said in a statement on Thursday.
“The URC takeover removes its only competitor, erodes the benefit of competition for the sugarcane planters, and leaves market power at the hands of a single provider in an area,” he added.
The PCC, which earlier raised competition concerns and last month rejected voluntary commitments submitted by both firms, said the fact that URC and Cadpi-RHI’s sugar mills were in Batangas would lessen competition not only in the area, but also in neighboring Cavite, Laguna and Quezon.
“The commission also noted that while the transaction mainly affects sugarcane farmers in Southern Luzon, the sugar processed from these facilities serve nationwide demand, including that of Metro Manila,” it said in the statement.
The PCC’s Mergers and Acquisitions Office was said to have raised the following concerns:
• As a “merger-to-monopoly”, the deal would eliminate URC’s only competitor in the area;
• URC would have the market power 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”;
• alternative sugar mills in Pampanga, Tarlac and Camarines Sur are too far, “thus not sufficient to constrain URC from exercising market power”; and
• the possibility of a new entrant “seems remote” given high barriers to entry and “if at all possible, may not be immediately forthcoming as to constrain URC from exercising market power after the transaction.”
URC, in a statement, said it accepted the PCC decision and expressed “support to the efforts of government for a strong market economy.”
It said the merger was its way of achieving “greater production efficiency” in order to provide quality products at affordable prices, and added that it had hoped the deal would “translate to better sugar planter and consumer welfare driven by a more stable and profitable sugar production industry in Southern Luzon.”
“We sought to address the concerns expressed by the PCC regarding the potential unintended consequences of such proposed transaction,” the company continued.
The ruling was a valid exercise of the PCC’s mandate, URC said, adding that the rejection would not “materially” impact its business plans.
RHI, meanwhile, only confirmed receipt of the PCC decision.
URC shares gained P3.30 or 2.35 percent to close at P143.80 while RHI saw its stocks drop 2 centavos or 0.66 percent to finish at P3 amid 0.90-percent spike for benchmark Philippine Stock Exchange.
Gokongwei-led URC is engaged in the food and related businesses, including the production of packed foods and beverages, sugar, agro-industrial products and bioethanol. Its mills in Batangas, Iloilo, Negros Oriental and Occidental, and Cagayan produce raw sugar, refined sugar and molasses for URC business segments and third parties.
RHI, which describes itself as the country’s largest integrated sugar business and the biggest domestic producer of ethanol, owns 100 percent of CADPI in addition to other firms such as Central Azucarera de la Carlota Inc, in Negros Oriental and Roxol Bioenergy Corp. in Noegros Occidental.
The PCC, a quasi-judicial body established in 2016 under the Philippine Competition Act of 2015, is tasked with reviewing mergers and acquisitions for possible adverse effects on competition and also initiating investigations into anti-competitive practices.
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