PCC rules on M&A review
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.