Published 30 July 2018, The Daily Tribune

Are company mergers or acquisitions considered private business transactions outside of government regulation?

This must be a question of business owners looking to expand their influence and reach by acquiring companies in a similar line of business or joining with more stable, established entities.

The answer has always been in the negative.

The Corporation Code used to be the only law regulating mergers and acquisitions. It has set out voting and approval requirements for such transactions to be valid. For instance, the plan for merger or consolidation shall be approved by at least majority vote of the board of directors and affirmed or ratified by the stockholders representing at least 2/3 of the outstanding capital stock of the concerned corporations at separate meetings duly called for said purpose.

The articles of merger or of consolidation must then be submitted to the Securities and Exchange Commission for approval if the proposal is not contrary to or inconsistent with the provisions of law.

Upon the signing into law of the Philippine Competition Act (Republic Act 10667) on 21 July 2015, stricter measures were put in place and a new agency was set up to monitor compliance. The law aims to promote the well-being of consumers and preserve the efficiency of competition in the marketplace free and all commercial economic activities by penalizing anti-competitive business behaviors, abuses in dominant positions and anti-competitive mergers and acquisitions.

The Philippine Competition Commission (PCC), an attached agency of the Office of the President, was also created to monitor policy implementation, approve proposed mergers and regulate entities engaged in illegal price fixing.

The PCC is mandated to review mergers and acquisitions based on factors deemed relevant by it. Under the new law, parties to the merger or acquisition agreement wherein the value of the transaction exceeds One Billion Pesos are prohibited from consummating their agreement until 30 days after providing notification to the PCC in the form and containing the information specified in the regulations issued by the same agency.

Just recently, in March 2018, the PCC increased the threshold for reviewing merger and acquisition transactions from P1 billion to P5 billion for the value of assets or revenues of the parent entity and P2 billion for the size of the transaction as defined in the implementing rules and regulations.

When the above periods have expired and the PCC has not approved or denied the transaction, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it. If the merger or acquisition involves banks, banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, a favorable or no-objection ruling by the PCC does not necessarily mean that the favorable recommendation by the appropriate government agency can be dispensed with. For example, the approval of the Monetary Board of the Bangko Sentral ng Pilipinas is still required for mergers and acquisitions involving banks and banking institutions and the Insurance Commission for insurance companies.

If within the above-stated periods, the PCC determines that the merger or acquisition agreement substantially prevents, restricts or lessens competition in the relevant market or in the market for goods or services prohibited under the law and does not qualify for certain exemptions under the law, the PCC may (a) prohibit the implementation of the agreement; (b) prohibit the implementation of the agreement unless and until it is modified by changes specified by the Commission; or (c) prohibit the implementation of the agreement unless and until the pertinent party or parties enter into legally enforceable agreements specified by the commission.

The consequences of non-compliance with the mandatory notification and review procedures are dire. An agreement consummated in violation of the requirement to notify the PCC shall be considered void and subjects the parties to an administrative fine of one to five percent of the value of the transaction. Any party who is found to have engaged in anti-competitive agreements shall be subject to administrative fines of up to P100,000,000 for the first offense, up to P250,000,000 for the second offense and criminal penalties resulting in fines and imprisonment of two to seven years. So, before any entity considers mergers and acquisitions to make it stronger against competition, it must similarly ensure that the transaction is not anti-competition.

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