PCC blocks merger of 2 sugar mills

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THE country’s antitrust body, the Philippine Competition Commission (PCC), said on Thursday it has blocked the merger of two sugar millers to prevent a monopoly of sugarcane milling services in Southern Luzon. 

In a statement, the PCC rejected Universal Robina Corp.’s (URC) proposal to buy out the assets of Central Azucarera Don Pedro Inc. (Cadpi) and Roxas Holdings Inc. (RHI), its only competitor in Southern Luzon.

The PCC said the decision was reached despite the submissions made by URC, Cadpi and RHI. The anti-trust body found these submissions insufficient in addressing competition concerns. 

“The prohibition prevents this deal from creating a monopoly in the relevant market that could harm the welfare of the sugarcane 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. 

The PCC said both millers are located in Batangas. URC’s sugar mill is located in Balayan, while Cadpi-RHI’s milling facilities are in Nasugbu, Batangas.  A merger, the PCC said, would lessen competition in the sugar milling-services market not only in Batangas, but also in Cavite, Laguna and Quezon.

The Commission said that, while the sugarcane milling transactions will affect farmers in Southern Luzon, the sugar processed from these facilities serve nationwide demand, including Metro Manila. 

Based on the PCC’s market investigation, sugarcane farmers stand to lose the benefits of competition under a monopoly. This will come in the form of planters’ cut in sharing agreements, sugar recovery rates and incentives.

The PCC’s Mergers and Acquisitions Office expressed concern that 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. 

The Commission also found that barriers to entry were high and the possibility of a new entrant would be remote, if it was even possible. This will give the URC freedom to exercise market power after the transaction. 

“Other sugar mills outside of Batangas are too far [Pampanga, Tarlac, Camarines Sur], thus, not sufficient to constrain URC from exercising market power,” PCC added. 

URC is engaged in a wide range of food-related businesses, including the production of packed foods and beverages, sugar, agro-industrial products and bioethanol. 

Its mills are located in Batangas, Iloilo, Negros Oriental, Negros Occidental and Cagayan. These mills produce raw sugar, refined sugar and molasses for supply to other URC business segments and third parties.

RHI owns 100 percent of the shares of Cadpi, which is operating an integrated sugarcane milling and refining plant in Batangas. RHI is also engaged in the trading of raw and refined sugar, and molasses.

“A merger-to-monopoly deal is among the most detrimental types of business transactions. The URC takeover removes its only competitor, erodes the benefits of competition for the sugarcane planters, and leaves market power at the hands of a single provider in an area,” Balisacan said.