Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

PCC Concludes Merger-To-Monopoly In Holcim/San Miguel Tie-Up

SMC Pursues A Ready-Mixed Fortune With Holcim

Quiddity Advisors

Event-Driven

Back in June, <a href="https://www.smartkarma.com/entities/san-miguel-corporation" target="_blank" data-smartkarma-citation="entities:22728:1" rel="noopener">San Miguel (SMC PM)</a> ​and <a href="https://www.smartkarma.com/entities/holcim-philippines-inc" target="_blank" data-smartkarma-citation="entities:22702:1" rel="noopener">Holcim Philippines (HLCM PM)</a> entered into a <a href="http://edge.pse.com.ph/downloadHtml.do?file_id=582973" target="_blank" rel="noopener">SPA</a> whereby SMC would acquire an 85.73% stake in HLCM. The agreement placed a valuation of US$2.15bn for HLCM on for 100% of the company, inclusive of fees for transitional service agreements, or ~PHP16.60-PHP17.00/share, depending on how that 100% is calculated.
Rumours first circulated in late January of such a takeover although a sale was largely on the cards after <a href="https://www.smartkarma.com/entities/lafargeholcim-ltd" target="_blank" data-smartkarma-citation="entities:27916:1" rel="noopener">LafargeHolcim Ltd (LHN SW)</a> divested Holcim Indonesia late last year. 
The biggest hurdle for this deal to get up was likely to centre on competition concerns. Therefore, the <a href="https://phcc.gov.ph/wp-content/uploads/2019/09/SMC-Holcim_Statement-on-the-Opening-of-Phase-II_06Sept2019.pdf" target="_blank" rel="noopener">launching</a> of a Phase II review by the Philippine Competition Commission (PCC) over the weekend should not come as a big surprise.
The more detailed Phase II review will be conducted within a 60-calendar day period - compared to 30 days under Phase I - to inquire whether there will be any substantial lessening of competition from the merger.
The PCC flagged six areas where the transaction may affect competition: Northeast Luzon, Northwest Luzon, Central Luzon and National Capital Region, Southern Luzon, Northern Mindanao, and Southern Mindanao Markets.
The PCC added that “the commencement of the Phase 2 review ... signifies that a more detailed analysis of the transaction is required using additional information from the parties and stakeholders” and that it "seeks to assess whether ... there will be an increased likelihood that competitors in such markets will coordinate their behaviour or strengthen existing coordination in a manner that harms competition".
SMC is the majority shareholder in Northern Cement (the 5th or 6th largest player in the Philippines) and it is expanding its cement business through Oro Cemento Industries Corporation and San Miguel Northern Cement. These subsidiaries are constructing cement-related facilities in Davao (southern Mindanao) and Pangasinan (western Luzon), which are expected to be completed and operational by 2020 and 2021, respectively.
In addition, SMC’s President and COO Ramon Ang is the major shareholder and chairman of Eagle Cement, a cement manufacturer and distributor of roughly equal size to Northern Cement.
For the entire Luzon market, I estimate the SMC group (including HLCM, Eagle and Northern) would hold a ~51% market share. 
According to the <a href="https://phcc.gov.ph/self-study-module-no-4-abuse-dominant-position/" target="_blank" rel="noopener">PCC</a>:
<blockquote>
There shall be a rebuttable presumption of market dominant position if the market share of an entity in the relevant market is at least fifty percent (50%). The Commission, however, may also set a new market share threshold for any particular sector, and it shall, from time to time, determine and publish the threshold for dominant position or minimum level of share in the relevant market that could give rise to a presumption of dominant position.
</blockquote>
SMC will be busy over the following two months arguing its case. Plus, there is a separate and ongoing PCC investigation into anti-competitive agreements and abuse of dominant positions in the cement industry.

Back in June, San Miguel (SMC PM) ​and Holcim Philippines (HLCM PM) entered into a SPA whereby SMC would acquire an 85.73% stake in HLCM. The agreement placed a valuation of US$2.15bn for HLCM on for 100% of the company, inclusive of fees for transitional service agreements, or ~PHP16.60-PHP17.00/share, depending on how that 100% is calculated.
Rumours first circulated in late January of such a takeover although a sale was largely on the cards after LafargeHolcim Ltd (LHN SW) divested Holcim Indonesia late last year. 
The biggest hurdle for this deal to get up was likely to centre on competition concerns. Therefore, the launching of a Phase II review by the Philippine Competition Commission (PCC) over the weekend should not come as a big surprise.
The more detailed Phase II review will be conducted within a 60-calendar day period - compared to 30 days under Phase I - to inquire whether there will be any substantial lessening of competition from the merger.
The PCC flagged six areas where the transaction may affect competition: Northeast Luzon, Northwest Luzon, Central Luzon and National Capital Region, Southern Luzon, Northern Mindanao, and Southern Mindanao Markets.
The PCC added that “the commencement of the Phase 2 review ... signifies that a more detailed analysis of the transaction is required using additional information from the parties and stakeholders” and that it "seeks to assess whether ... there will be an increased likelihood that competitors in such markets will coordinate their behaviour or strengthen existing coordination in a manner that harms competition".
SMC is the majority shareholder in Northern Cement (the 5th or 6th largest player in the Philippines) and it is expanding its cement business through Oro Cemento Industries Corporation and San Miguel Northern Cement. These subsidiaries are constructing cement-related facilities in Davao (southern Mindanao) and Pangasinan (western Luzon), which are expected to be completed and operational by 2020 and 2021, respectively.
In addition, SMC’s President and COO Ramon Ang is the major shareholder and chairman of Eagle Cement, a cement manufacturer and distributor of roughly equal size to Northern Cement.
For the entire Luzon market, I estimate the SMC group (including HLCM, Eagle and Northern) would hold a ~51% market share. 
According to the PCC:

There shall be a rebuttable presumption of market dominant position if the market share of an entity in the relevant market is at least fifty percent (50%).   The Commission, however, may also set a new market share threshold for any particular sector, and it shall, from time to time, determine and publish the threshold for dominant position or minimum level of share in the relevant market that could give rise to a presumption of dominant position.

SMC will be busy over the following two months arguing its case. Plus, there is a separate and ongoing PCC investigation into anti-competitive agreements and abuse of dominant positions in the cement industry. 

Holcim/San Miguel's Phase II Review And The Rebuttable Presumption