The Competition Commission of Pakistan (CCP) issued conditional no objection to the bidding by Fauji Fertilizer Company Limited (FFC) for the proposed acquisition of 75% to 79.87% shares of Ms. Agritech Limited by FFC. FFC had submitted its pre-merger application on 2nd August, 2010 for the acquisition of 75% to 79.87% shares of Ms. Agritech Limited (formerly Pak American Fertilizers Limited). The Commission intimated FFC vide its letter dated 12th August, 2010 that the Commission has decided to move the case to Phase 2 Review, with the view to determine whether the merger situation is likely to substantially prevent or lessen competition in the market and to ascertain the probability that the merged entity in the post-merger market will behave competitively or cooperatively. The Commission today issued its NOC for the proposed merger with the following conditions importantly requiring FFC to file its commitment within four weeks from the date of issuance of this decision to comply with all the conditions stipulated in the order, in letter and in spirit and the clearance/approval given by CCP shall only be deemed effective upon the filing of such commitments: 1. FFC shall maintain “tara” and “sona” brands separately for two years and there shall be a price cap on the price increase of “tara” product by FFC for a period of one year (although with efficiencies claimed it is expected that the price for ‘tara’ shall go down). The maintenance of the two brands shall be subject to review after a period of one year or any time later but prior to two years; provided the market share of Urea acquired by FFC i.e., 6% drops from the existing market share through distribution or redistribution amongst existing and upcoming players in the fertilizer sector. 2. FFC shall maintain transparency for any change in price in all its fertilizer products and shall for the period of three years intimate to the Commission any price escalation along with reasons for such price increase (if any) within seven days of such increase. 3. Subject to review of this decision as stipulated below, the Commission if deemed necessary may require FFC to divest a portion of shareholding in Hazara. 4. In terms of sub-section 11(b) of Section 11 this approval is subject to review within one year under sub-section 13 of the said section. For the purpose of review, the following shall be considered as a yardstick which may include but shall not be limited to the monitoring of: a. unexplained escalation in price levels; b. tendency of price parallelism; c. changes in market share and levels of concentration; d. new investments made in Balancing Modernization Replacement of the target firm by the acquirer leading to enhancement of production capacity; and e. commitment to nondiscriminatory behavior. The Bench has observed that while competition generally drives undertakings to achieve efficiencies internally, the primary benefit of the mergers to the economy is their potential to produce substantial efficiencies by enhancing its ability and incentive to compete. Efficiency claim, however, should not be vague or speculative and should be verifiable by reasonable means. Be it incremental cost reduction which may control the incentive to increase prices or leading to new and improved products or the ability of merged firms to conduct research or development which may encourage innovation. The eventual benefit, from the consumer’s perspective, is to see whether these efficiencies would result in lower prices, improved quality, enhanced services or new products. The Commission hopes that this decision will help achieving economies of scale in the fertilizer industry leading to decrease in consumer prices without substantially lessening competition. The Commission is also of the view that free trade ensures competition, keeps competitive pressure on the local industry and protects consumers from possible exploitation.