Cement Wars: Why San Miguel’s Planned Takeover of Holcim Philippines Collapsed
On Monday (May 11), San Miguel Corp. (SMC) disclosed to the Philippine Stock Exchange that its proposal to acquire a controlling 85.73 percent of Holcim Philippines Inc. (HPI) by May 10, 2020 had lapsed. Subsequently, the offer for the shares by First Stronghold Cement Industries Inc. (FSCII), a wholly-owned subsidiary of San Miguel Equity Investments Inc., which in turn is a wholly-owned subsidiary of SMC, was no longer pushing through.
SMC said that the acquisition required the approval of the Philippine Competition Commission (PCC), which it was not able to get prior to the May 10 deadline.
The PCC, however, is disputing this account and said that SMC and Holcim could have extended the deadline if they wanted to.
What exactly happened to the deal?
The deal’s beginnings
It was in May 2019 when FSCII first made public its plans to acquire 5.5 billion shares of Holcim Philippines, which is a unit of global giant LafargeHolcim Ltd., worth about $2.15 billion. An acquisition of this magnitude automatically necessitates a review by the PCC.
In its initial statement about the planned merger, the PCC said, “The merger-specific review of the SMC-HPI transaction is different from the ongoing investigation on possible cartel in the cement industry. Unlike cartel investigations which look into past conduct, merger reviews are carried out to determine any competition concerns before the transaction is consummated to prevent potential damage to consumers.”
In September 2019, FSCII formally made the tender offer for the HPI shares held by its minority shareholders.
In January 2020, the PCC issued its statement of concerns about the deal.
“In its review, (the Mergers and Acquisitions Office) determined that the buyout by SMC subsidiary, First Stronghold Cement Industries, Inc., 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 said.
“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,” it said.
The PCC also found that the merger would effectively eliminate Top Frontier’s only competitor in Northwest Luzon, “resulting in a monopoly in the market for grey cement.”
Top Frontier Investment Holdings is the SMC-owned umbrella company that includes Northern Cement Corp. and Eagle Cement Corp.
“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,” the PCC added.
Put on the defensive, SMC said it was aware of the concerns raised by the PCC.
“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 in a statement in February.
After the initial review, both Top Frontier and Holcim Philippines said they would submit voluntary commitments to the PCC. These voluntary commitments would then be evaluated by the agency’s Mergers and Acquisitions Office if they adequately address competition concerns.
The PCC’s side
In a statement issued on Tuesday, May 12, the PCC said it was nearing the completion of its Phase 2 review of the acquisition when SMC announced that it was no longer pursuing said deal.
The PCC said the Phase 2 review was suspended by Administrative Order No. 30, which rendered all proceedings interrupted until the end of the community quarantine caused by the coronavirus pandemic.
The agency noted that the May 10, 2020 deadline was an internal agreement between SMC and Holcim Philippines and was “within their prerogative to extend as needed. The PCC, as antitrust authority, acts in accordance with its statutory timelines.” This seems to run contrary to SMC’s claim that it was dropping the deal because it had not been granted approval by the PCC.
“The SMC’s decision not to proceed with the acquisition of HPI comes after the Commission rejected the parties’ several proposals for voluntary commitments, and after the parties had requested several extensions to file their required comment to the Statement of Concerns (SOC) submitted by the PCC’s Mergers and Acquisitions Office (MAO) before the Commission,” the PCC said.
“The Phase 2 review of the transaction was suspended upon the parties’ submission of voluntary commitments. PCC rejected the proposed commitments after they were found insufficient to address the competition concerns, reverting the transaction to Phase 2 review. The parties, however, have yet to file their respective comments to answer the competition concerns raised in the SOC,” it added.
LafargeHolcim is keeping its business in the Philippines
For its part, Swiss-based company LafargeHolcim said it is keeping its cement business in the Philippines in the wake of the collapse of its deal with SMC.
“Given today’s new reality, we have decided to no longer sell our business in the Philippines,” LafargeHolcim said in a report by Reuters. “The Philippines is one of the most high-growth countries in the Asia-Pacific region and we intend to maintain our leadership position there.”
The Reuters report valued the company’s business in the Philippines at $2.15 billion.
Lafarge also blamed the deal’s collapse to the PCC’s failure to greenlight the merger.
“The PCC did not issue an approval of the transaction within the required time period and consequently the agreement lapsed,” LafargeHolcim said.
In recent years, the company had been selling assets in Southeast Asia in preparation for its exit from what it called the “hyper-competitive” region.
The Swiss company had earlier also quit Indonesia, Malaysia and Singapore, where its businesses together with the Philippines operation were worth $4.9 billion, according to Reuters.