Proposed acquisition of Tri-pack Films Ltd by Packages Ltd from Mitsubishi cleared

ISLAMABAD: After undertaking an in-depth phase-II review, the anti-trust watchdog has cleared the proposed acquisition of Tri-pack Films Limited (TFL) by Packages Limited (PL) from the Mitsubishi Corporation (MC).

The approval means that Packages Limited can move forward with its plans to acquire the business shareholding in Tri-pack Films Limited from Mitsubishi.

As per the merger order, a copy of which is available with Business Recorder, the Competition Commission of Pakistan (CCP)’s bench comprising its Chairperson Rahat Kaunain Hassan, and members, Shaista Bano and Mijtaba Ahmed Lodhi, passed the order granting the merger approval under Section 11 of the Competition Act, 2010.

The acquirer, Packages Limited is a public limited and investment holding company engaged in various businesses i.e. packaging material, tissue and consumer products, industrial inks, insurance and power generation.

Whereas, Mitsubishi Corporation (the seller) is a conglomerate that is engaged in various businesses including industrial material, natural gas, minerals resources, finance, machinery and petroleum and chemical solutions.

Tri-pack Films Limited manufactures and sells Biaxially Oriented Polypropylene films (BoPP) and Cast Polypropylene Films (CPP) films that are best suited for food and beverage application such as snacks, confectionery, dairy food, fresh-cut vegetables, as well as non-food applications like over-wrapping, lamination and bag making etc.

The proposed transaction came to the CCP’s notice on 19 February 2021 through a notice of the acquirer (Packages Limited) that appeared on the data portal of the Pakistan Stock Exchange.

Following a thorough correspondence with the TFL and the acquirer regarding the filing of the pre-merger application, Packages Limited submitted the Application with the CCP regarding the transaction, with the information being completed on August 11, 2021.

The commission, in its phase-I order, stated that it had concerns regarding the subject merger’s compatibility with the antitrust laws.

Accordingly, a phase-II review was initiated under Section 11(6) of the act.

On the basis of the information presented before a two-member bench of the commission, the commission issued the phase-I order, under Section 11(5) read with Section 31 of the act, wherein, the relevant product markets, in this case, were identified as Biaxially Oriented Polypropylene Films (BOPP or “Relevant Market-1”) and Cast Polypropylene Films (CPP or “Relevant Market-2”) while the relevant geographic market was Pakistan.

It was further determined that the proposed transaction met the presumption of dominance as determined in Section 2(1)(e) read with Section 3 of the Act, and, therefore, required a more detailed assessment during the phase-II review to determine whether the transaction would substantially lessen competition in the relevant markets.

On September 7, 2021, after the passing of the Phase-I Order, the first letter was sent by the commission to the acquirer requesting the information in order to assess the impact of the intended acquisition on the packaging industry in Pakistan.

The requesting information includes but is not limited to a complete list and market shares of the competitors for relevant market-1 and relevant market-2, a detailed list of products and services provided by the Acquirer, nature and detail of transactions, and a list of customers of the merging parties separately for all the products and services offered.

To hear out the merging parties, the CCP held a hearing on 8 October 2021.

During the hearing, the counsel, on behalf of the acquirer, made a preliminary argument explaining that the seller decided to exit Pakistan and contended that the transaction will not improve the acquirer’s dominant position because the acquirer is already dominant in the market, since the target company already has a large market share and the acquirer has management control of the target company prior to the transaction.

The counsel further elaborated that all the transactions taking place with sister concerns were taking place at an arm’s length basis, which is disclosed in the annual report.

Furthermore, the target company has a policy in place called the “related party transactions policy,” which ensures that related party transactions are carried out at an arm’s length basis.

The BOPP is one of the materials used for flexible packaging and labelling in food (such as confectionery items, biscuits, snacks, tea, etc.) and non-food sectors (labels, textile bags, tobacco, pharmaceutical items, etc.). Upstream of BOPP film manufacturers are polypropylene manufacturers, and downstream BOPP film is principally supplied to converters and large multinational consumer product manufacturers. BOPP film can be subdivided into transparent, white/opaque and metallised plastic material.

Cast Polypropylene Films (CPP) is a cost-effective, low density, high-performance transparent cast polypropylene film. CPP films are often seen as having optical clarity, high gloss, good seal strength, and machinability, and are resistant to tears and punctures. These characteristics make this plastic good for the medical, food packaging, and textile industries.

The target company is engaged in the manufacturing and sale of only BOPP and CPP films, the relevant product markets are therefore the same as determined by the Commission in its Phase I Order, i.e., Relevant Market-1 and Relevant Market-2. Given that the Target Company sells its products to customers located all over Pakistan, the relevant geographic market has been taken to be the whole of Pakistan.

According to one theory of harm, as stated in the Order, the Transaction raises the likelihood that, following the merger, merging parties and their competitors will be able to possibly coordinate their behaviour in an anti-competitive manner, as there are only three big players in the Relevant markets, potentially driving smaller firms out of the industry due to a highly concentrated market.

The Commission conducted a detailed assessment of the competition in the relevant market by reviewing all relevant material, documents and facts on the record and found that the transaction by the acquirer shall not adversely impact the competition in the relevant market. The Commission also found no history of collusion or any other anti-competitive practices in the relevant market.

The bench of the Commission in the Order concluded that the acquisition transaction is not likely to substantially lessen competition in the relevant markets and it neither creates nor strengthens a dominant position as the acquirer’s position of control remains the same in effect.

As per Order, the approval of the acquisition of shareholding is based on the undertakings submitted by both merger parties (i.e. Targeted company and Acquirer) stating that the merger parties will continue their operations at arm’s length basis in any transaction and will not abuse their dominant position by taking part or conducting any anti-competitive practice in strict compliance of the Competition Act, 2010. Moreover, the Commission, under Section 11 read with sub-section 14 of the Competition Act, reserves the right to assess and review the effects of the transaction on the relevant markets on its own or upon the application by any other concerned undertaking(s).

Copyright Business Recorder, 2021