Watchdog ups M&A reporting trigger

THE PHILIPPINE Competition Commission (PCC) has increased the threshold for merger and acquisition (M&A) deals that need regulatory approval, in a move designed to make checks on such transactions less cumbersome.

In Memorandum Circular No. 18- 001 published on Monday, the competition body said it has raised the notification threshold for:

• “size of person” — defined as the aggregate annual gross revenues or value of assets of “the ultimate parent entity of at least one of the acquiring or acquired entities” — to P5 billion from P1 billion previously;

• and value of transaction — referring to the value of the assets or revenues of the acquired entity — to P2 billion, also from P1 billion.

The circular amends Section 3 of the Implementing Rules and Regulations of Republic Act No. 10667, otherwise known as the Philippine Competition Act.

M&A deals under review by the commission before the circular takes effect on March 20 will not be affected by the amendments.

“The adjustment stems from the various considerations, including the size of actual notifications to date, the country’s economic growth, overall inflation and efficient use of the Commission’s limited resources,” PCC Chairman Arsenio M. Balisacan said in a statement.

The commission has also put in place an automatic adjustment mechanism for the threshold every year starting March 1, 2019, taking into consideration the Philippine Statistics Authority’s official estimate of nominal gross domestic product (GDP) growth of the previous calendar year.

This periodic adjustment will ensure that the threshold is responsive to changes in the markets and the overall economy.

“The annual adjustment based on nominal GDP growth ensures that the thresholds maintain their real value over time and relative to the size of the economy,”

Mr. Balisacan said in the same press statement.

The commission has so far received 152 notifications, equivalent to 134 transactions, since it was established in 2016. Of this complement, the commission has approved 125 transactions cumulatively worth some P2.25 trillion, with the remaining transactions filed in various stages of review. Most of the deals involve manufacturing, financial, electricity, real estate and transportation.

The threshold increase drew mixed reactions from the business community.

“We are in favor of that, because even before then, we were commenting that the P1 billion is too small,” Philippine Chamber of Commerce and Industry President George T. Barcelon said in a phone interview.

“If you compute that, that’s only $20 million. So that’s really very small, because otherwise medium-sized acquisitions will entail longer process of being reviewed by the PCC.”

Mr. Barcelon noted the P2-billion threshold for size of transaction is at par with rules of other countries, where standards are at $40-50 million.

“So now that it has been increased, this is an amount that is easier to deal with,” Mr. Barcelon explained.

John D. Forbes, senior adviser to the American Chamber of Commerce of the Philippines, also welcomed the changes, saying in a mobile phone message: “The PCC action is sensible as it allows the commission to focus on reviewing larger mergers which could inherently be more anti-competitive.”

Federation of Philippine Industries Chairman Jesus L. Arranza, however, said the changes could contradict PCC’s mandate.

“The reason why there is that requirement is to prevent cartel, collusion and to encourage competition… increasing it now… will allow so many mergers because the threshold has been doubled,” he said in a phone interview.

“It will defeat the very purpose of the provision in the competition law.”