Notifications: Philippine Competition Act Made Simple (Part 3)

Christian Andrew Labitoria Gallardo[1]


“If you can’t lick ’em, jine ’em.”


The casual proverb stated above, as made famous by a Republican Senator James "Jim" Watson, is the slang version of the fine saying "if you can't beat them, join them". It is a strategical pronouncement that instead of accepting defeat passively, it would be more prudent and wise to adopt the scheme, or even join, the opponents in order to at least get a sense of control of the situation. Ironically however, despite loss of a Senate seat with a landslide defeat from the Democrats, Watsons remained loyal to his party until the end.


What happens however if two competing entities suddenly merge into one? Alternatively, what if one buys the other? Is that even allowed in the first place?


Mergers and Acquisition


Merger refers to the joining of two or more entities, either to become one with an existing entity or to form an entirely new entity.[2] Acquisition, on the other hand, refers to the purchase of assets or securities in order to obtain control of an entity.[3] The different forms of Mergers and Acquisitions shall be discussed in a different article.


Mandatory Notice


Parties to a merger or acquisition agreement is required to notify the Philippine Competition Commission at least 30 days prior to the actual merger or consolidation if:


(I) The aggregate annual revenues in or from the Philippines or the value of the assets in the Philippines of the parent entity of at least one of the entities involved in the merger or consolidation, including that of all entities that the parent entity controls, exceeds Five Billion Six Hundred Million Pesos AND


(II) the value of the transaction exceeds Two Billion Two Hundred MillionPesos.[4]


The value of the transaction shall be determined as follows


· For proposed merger or consolidation in the Philippines, the value of the transaction shall be the aggregate value of assets being acquired in the country, OR the gross revenue generated by the assets being acquired in the country


· For proposed merger or consolidation outside the Philippines, the value of the transaction shall be the aggregate value of assets in the Philippines of the acquiring entity, AND the gross revenue generated in the Philippines by the assets acquired outside the country


· For proposed merger or consolidation inside and outside the Philippines, the value of the transaction shall be the aggregate value of assets in the Philippines of the acquiring entity, AND the gross revenue generated in the Philippines by the assets acquired inside and outside the country[5]


Notifications on Acquisition and Joint Venture


Note that not only mergers in the legal sense needs notification. Acquisition of at least 35% of the voting shares, or entitlement to profits, of a competitor, or if already holding such equity, increasing it to 50% would also require notification if the value of the assets owned by the corporation it controls OR its gross revenues in the Philippines likewise exceeds Two Billion Two Hundred Million Pesos.[6]


Similarly, Joint Venture Agreements between competitors where the value of assets contributed to the Joint Venture, or the gross revenues by the assets contributed, exceeds Two Billion Two Hundred Million requires notification.[7]


Penalty for Failure to Notify


Failure to provide the necessary notification, either intentionally or by mere oversight, is not a joking matter. For one, it will make the merger or consolidation void and of no legal effect. More than that, the parties shall be subjected to an administrative fine of 1% to 5% of the value of the transaction.[8] This is a huge amount, considering that mergers, acquisitions and joint ventures between competing entities are usually worth millions or even billions of Pesos.


To Conclude


Basically, mergers, acquisitions and joint ventures involving huge competing entities must be approved by the Philippine Competition Commission. Rightfully so, as these high-valued transactions are sometimes made with the end of thwarting competition to freely increase the price or reduce the quality of the product or service, in order to recoup the cost of the transaction. With this in mind then, we shall provide a concrete case of a merger between giant competing entities-Grab and Uber PH, for our next article. Meanwhile, please do join our facebook group for more legal updates and articles.

https://www.facebook.com/groups/businesslaborforum/


Photo from: clipart-library.com

[1]Christian Andrew Labitoria Gallardo is a recent graduate of the Ateneo School of Law with a Juris Doctor degree, and is currently an associate of the Sangalang and Gaerlan, Business Lawyers, a law firm specializing in labor, corporate and business law. You may reach him through a phone call or message (09157042132) or via email (andrew.gallardo@paladinslaw.org). [2] Article 76, RA 11232, Revised Corporation Code of the Philippines. [3] Id. [4] PCC Advisory 2019-001. [5] PCC Advisory 2019-001. [6] Id. [7] Id. [8] § 17, RA 10667, Philippine Competition Act.

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