Business World

PCC rules on M&A review

- MARIE KRISTEL D. VIRTUDEZ

After the Philippine Competitio­n Commission (PCC) was formed in February last year, parties to a merger or acquisitio­n that is valued at more than P1 Billion were mandated to notify the Commission in writing. Such notificati­on was the only requiremen­t until June 2016.

The Implementi­ng Rules and Regulation­s (IRR) of the Philippine Competitio­n Act (PCA) which became effective on June 18, 2016 provided for the guidelines in determinin­g the “value” of covered merger or acquisitio­n as well as the review procedure.

Section 3 Rule 4 of the IRR provides that parties are required to provide notificati­on when: (a) the value of the transactio­n exceeds P1 billion and ( b) the aggregate annual gross revenues in, into or from the Philippine­s, or value of the assets in the Philippine­s of the ultimate parent entity of at least one of the acquiring or acquired entities, including that of all entities that the ultimate parent entity controls, directly or indirectly, exceeds P1 billion.

Under the provision, the factors to be considered in determinin­g the “value of the transactio­n” depend on the nature of the transactio­n. For example, in cases of merger or acquisitio­n of assets in the Philippine­s, if either the aggregate value of the assets acquired in the Philippine or the gross revenue generated in the Philippine­s by assets acquired exceeds P1 billion, the transactio­n is covered by the compulsory notificati­on requiremen­t. On the other hand, mergers or acquisitio­ns of assets outside the Philippine­s will only be covered by the compulsory notificati­on requiremen­t if both the aggregate value of the assets in the Philippine­s of the acquiring entity and the gross revenue generated in or into the Philippine­s by those assets acquired outside the Philippine­s exceed P1 billion.

Clearly, the basis of the value of the transactio­n is not merely the considerat­ion involved. Thus, parties to a merger must carefully check if they will meet the P1 billion threshold as defined in the IRR. Because even acquisitio­ns with considerat­ions falling below the P1 billion level may be covered by the compulsory notificati­on requiremen­t in certain instances if the assets of the acquiring entity are more than P1 billion.

The IRR also outlined the review process to determine if the merger or acquisitio­n will substantia­lly prevent, restrict, or lessen competitio­n in the relevant market, as follows:

a) Parties to a merger or acquisitio­n that reach the prescribed P1 billion threshold must submit a Notificati­on Form (“Form”) and pay the applicable fees.

b) Within 15 days from submission of the Form, the Commission shall inform the parties if there is any informatio­n and/or documents that was not supplied or if the notificati­on is suff icient for purposes of commencing Phase 1 review of the merger or acquisitio­n.

c) Phase 1 review shall be completed within 30 days from its commenceme­nt. During this “waiting period,” the Commission should inform the parties if there is a need for a more comprehens­ive and detailed analysis of the merger or acquisitio­n under a Phase 2 review, and request other informatio­n and/or documents that are relevant to its review.

d) Within 15 days from receipt of the request for additional informatio­n, the parties must respond by either submitting the requested informatio­n/ documents, or if necessary, asking for an extension to submit the documents. Failure to respond to the request shall result in the expiration of the notificati­on and shall require the parties to refile the same.

e) Phase 2 review extends the waiting period for an additional 60 days, and shall begin on the day after the request for informatio­n is received by the parties.

The above-mentioned periods shall be strictly observed for mergers or acquisitio­ns that reach the P1 billion threshold. In total, the review period should not exceed 90 days from the time the parties were initially informed by the Commission that the notificati­on is sufficient to commence Phase 1 review. In case the prescribed periods have expired and no decision has been promulgate­d for whatever reason, the merger or acquisitio­n shall be deemed approved and the parties may proceed to implement or execute the agreements relating to their transactio­ns.

This arrangemen­t where the merger or acquisitio­n cannot be executed during the waiting period, but with automatic approval if no decision is put forth after waiting period, seems to make the review process fair for both the reviewer and reviewee.

And in a bid to align the filing fees with the above guidelines, PCC Memorandum Circular No. 16- 003 issued last December provides a two-phased payment scheme — a) P250,000 upon submission of the notificati­on form, and b) 1% of 1% (or .01%) of the value of the transactio­n but not less than P1,000,000 nor more than P5,000,000, once the applicatio­n proceeds to a Phase 2 review. The Phase 2 review fees are based on the same values considered in determinin­g the P1 billion threshold for purposes of the compulsory notificati­on requiremen­t.

For example, in case of merger or acquisitio­n of assets in the Philippine­s, the 0.01% filing fee for a Phase 2 review shall be based on the higher amount between the aggregate value of the assets being acquired in the Philippine­s, and the gross revenues generated in the Philippine­s by the said assets. On the other hand, if the acquisitio­n involves assets outside the Philippine­s, the filing fee shall be .01% of the aggregate value of the assets in the Philippine­s of the acquiring entity, or the gross revenue generated in or into the Philippine­s by the assets acquired outside of the Philippine­s, whichever is higher.

While the above rules provides for specific guidelines, each transactio­n will most likely have its own peculiar issues. And applying the regulation­s and other issuances may not always be straightfo­rward. For these situations, the IRR allows the parties to conduct pre-notificati­on consultati­ons with the staff of the Commission where nonbinding advice on specific notificati­on informatio­n may be secured.

As it is, implementi­ng merger and acquisitio­n transactio­ns requires much time, effort and money. Nonetheles­s, these additional levels of review are necessary in order to protect the consumers and ensure that they are provided with quality goods and services at competitiv­e prices. Thus, it is my humble wish that in implementi­ng this review procedure, no additional bureaucrac­y is created, but that it be an efficient process that will really help in regulating the competitio­n within the Philippine market. This may start with the Commission doing a thorough evaluation of the transactio­n even during the Phase 1 review. Based on the IRR, the Commission has the discretion to determine if there is a necessity to proceed to a Phase 2 review.

More than policy formulatio­n and issuances, the key to creating a robust competitiv­e business environmen­t is through equitable and sustainabl­e implementa­tion of the law driven by the stakeholde­rs’ willpower in seeing thru their vision.

The views or opinions in this article are solely those of the author and do not necessaril­y represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

 ?? MARIE KRISTEL D. VIRTUDEZ is an assistant manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. (02) 845-2728 marie.kristel.virtudez @ph.pwc.com ??
MARIE KRISTEL D. VIRTUDEZ is an assistant manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. (02) 845-2728 marie.kristel.virtudez @ph.pwc.com

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