PCC rejects merger plan of URC and Roxas sugar mills

The Philippine Competition Commission (PCC) has barred the planned merger between the two sugar millers in Southern Luzon — Universal Robina Corporation (URC), and Central Azucarera Don Pedro, Inc. (CADPI) and Roxas Holdings, Inc. (RHI).

In a Commission Decision prohibiting the merger, the PCC said it found that URC’s buyout of its only competitor in the sugarcane milling services market leads to a monopoly in Southern Luzon.

The PCC earlier raised competition concerns on URC’s proposed acquisition of CADPI and RHI assets. The parties then voluntarily submitted commitments but these failed to sufficiently address the competition concerns.

“The prohibition prevents this deal from creating a monopoly in the relevant market that could harm the welfare of the sugar cane planters. It is the duty of the Commission to prevent the creation of monopolies when applying the merger control powers conferred on it by the Philippine Competition Act,” PCC Chairman Arsenio M. Balisacan said.

URC’s sugar mill is in Balayan while CADPI-RHI’s milling facilities are in Nasugbu. Both mill operators are in Batangas but the monopoly to be created by the merger will substantially lessen competition in the sugar milling services market not only in Batangas, but also in Cavite, Laguna, and Quezon.

The PCC 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.

The PCC’s market investigation earlier showed that farmers stand to lose the benefits of competition due to the merger, especially in terms of planters’ cut in sharing agreements, sugar recovery rates, and incentives.

Specifically, the PCC’s Mergers and Acquisitions Office raised the following competition concerns:

• The transaction is a merger-tomonopoly and will eliminate the only competitor of URC in the relevant market;

• The transaction will create market power for URC and allow it 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;

• Other sugar mills outside of Batangas are too far (Pampanga, Tarlac, Camarines Sur), thus not sufficient to constrain URC from exercising market power; and

• Barriers to entry are high and the possibility of a new entrant seems remote and, if at all possible, may not be immediately forthcoming as to constrain URC from exercising market power after the transaction.