WHAT ARE THE THRESHOLDS FOR COMPULSORY NOTIFICATION OF MERGERS AND ACQUISITIONS?

Parties to a merger or acquisition agreement where the size of transaction and size of person/party exceed the thresholds set annually by the PCC are required to notify the Commission of such agreement before consummating the transaction. The annual adjustment of thresholds for compulsory notification is based on the Philippine Statistics Authority’s official estimate of the nominal gross domestic product (GDP) of the previous year.
In September 2020, the values of the size-of-party and size-of-transaction thresholds, which were then set at PHP 6 billion and PHP 2.4 billion, respectively, were further adjusted pursuant to Republic Act No. 11494 or the Bayanihan to Recover as One Act. Section 4(eee) of the said law exempts mergers or acquisitions from compulsory notification with transaction values below PHP 50 billion if entered into within two (2) years from the effectivity of the law on 15 September 2020. The said section was enacted as part of the government’s economic recovery measures, and for the stated purpose of “promoting business continuity and capacity building.”

WHO IS/ARE THE NOTIFYING ENTITY/ENTITIES?

Under the Implementing Rules and Regulations of the PCA (IRR), the notifying entity/entities refer to the following parties:
* The acquiring and acquired parties to the notifiable M&A and their ultimate parent entities.
* In the formation of a joint venture (other than in connection with a merger or consolidation), the contributing entities shall be deemed acquiring entities, and the joint venture shall be deemed the acquired entity.

IF A TRANSACTION IS NOT SUBJECT TO COMPULSORY NOTIFICATION, CAN THE PCC STILL REVIEW IT?

The PCC has the authority to review or investigate,  motu proprio or on its own initiative, any transaction that may result in substantial lessening or restriction of competition in a market.  Motu proprio means that, even without notification, the PCC may commence a review of the proposed transaction.
Additionally, an agreement consummated in violation of compulsory notification requirement shall be considered void and subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.

Illustrative case:

In April 2018, the PCC began a  motu proprio review of the acquisition by ride-hailing service provider Grab Holdings, Inc. (GHI) and MyTaxi.PH, Inc. (MTPH) of its competitor, Uber B.V. (UBV) and Uber Systems, Inc. (USI). The PCC’s Mergers and Acquisitions Office issued a Statement of Concerns (SOC) in May. The competition concerns flagged by the SOC included price increases and service deterioration arising from the merger of the country’s two biggest ride-hailing apps. Amid the review, Grab offered to address the competition concerns, which was the basis of the PCC’s subsequent decision clearing the merger subject to conditions.

WHAT IS THE RECOURSE IF A PROPOSED M&A IS FOUND TO BE ANTI-COMPETITIVE??

If it finds that the M&A could substantially prevent, restrict, or lessen competition in the market, the PCC can prohibit the transaction or impose conditions before the transaction can be consummated. Alternatively, the merging parties can propose voluntary commitments meant to curtail the anti-competitive effects of the transaction. If the Commission accepts these commitments, then the transaction can proceed, on condition that the PCC will monitor the parties post-merger to determine if they have complied with those commitments.

Illustrative case:

In 2017, the PCC accepted voluntary commitments from TQMP Glass Manufacturing Corp. (TQMP) as a precondition to TQMP’s acquisition of AGC Flat Glass Philippines, Inc. (AGPH), the sole domestic manufacturer of clear and bronze flat glass. The said commitments prevent TQMP from engaging in anti-competitive conduct such as restricting supply to competitors of its related entities. The PCC found that, after acquisition of AGPH, TQMP and its related entities would control more than 50 percent of clear and bronze flat glass supplied in the Philippines either via importation or domestic manufacture. The PCC also noted that TQMP had the ability and incentive to increase prices of clear and bronze flat glass supplied to competitors of its related entities post-acquisition, as TQMP had related entities involved in the downstream industries of glass processing and distribution. The PCC approved the said acquisition based on the commitments offered by TQMP.

WHAT ARE THE EXCEPTIONS TO COMPULSORY NOTIFICATION?

Joint ventures of private entities formed for both solicited and unsolicited public-private partnership (PPP) projects may be exempted from compulsory notification. The PCC however can modify or rescind, among others, the transaction value threshold and other criteria subject to compulsory notification and the exceptions or exemptions from the notification requirement.

Coverage of Compulsory Notification in Land Acquisition:

A land acquisition not for the purpose of obtaining control by one (1) or more entities through contract or other means is not subject to the compulsory notification requirement under the PCA and its IRR. A land acquisition is not for the purpose of obtaining control when the following requisites are present:
1. The acquiring entity will not obtain control over an acquired entity as a result of the acquisition; or
2. The acquiring entity will not obtain control over a part of an acquired entity as a result of the acquisition:
(i) The land to be acquired does not contain improvements that constitute an operating segment as defined under Section 6 that will result in a horizontal or vertical relationship between the Notifying Group of the acquiring and acquired entities; and
(ii) The land to be acquired does not contain improvements that may be considered as an essential facility, as defined under Section 7.

Coverage of Compulsory Notification in Consolidation of Ownership:

A merger or acquisition involving several entities controlled by the same natural person(s) is not covered by compulsory notification if there is no change in control, post-transaction.If there are other shareholders who own or control shares in the holding company which will have the ability to control the combined entities after the consummation of the transaction, the transaction will be covered by the compulsory notification requirement. -- need to edit url