Higher thresholds to trim M&A filings

With higher thresholds in place, the Philippines Competition Commission (PCC) expects a substantial decline in the number of proposed mergers and acquisitions (M&A) this year, allowing it to focus on transactions that pose more potential harm to the market.

“Assuming more or less the same profile of M&As this year, the commission expects a 33-percent reduction in the intake of notifications with the new thresholds. In turn, this will allow the commission to deploy resources towards the effective implementation of a holistic merger control policy,” PCC chairman Arsenio Balisacan said in a briefing yesterday.

“Should the new thresholds result in a better filter of notifiable transactions, fewer notified M&As would also allow the commission to engage in other equally important elements of a merger control regime. The commission can increase efforts in market monitoring, policy advocacy, competition enforcement, and the conduct of market studies,” he added.

Balisacan said the PCC in its review found that M&As with Size of Transaction values below P2 billion and whose parties have Size of Party values less than P5 billion are “characteristically less likely to raise competition concerns.”

Based on the 46 proposed M&A transactions the PCC received in 2017, 15 or about 33 percent had a Size of Transaction below P2 billion or a Size of Party below P5 billion.

Balisacan said the 15 transactions were all cleared in Phase I, with the exception of one transaction which was reviewed in Phase II, then subsequently cleared with the offer of voluntary commitments.

“These transactions tend to be those that are, by nature, less likely to raise competition concerns, such that there are hardly any horizontal or vertical overlaps, they operate within relevant markets that are global, or they would have relatively small market shares after the merger or acquisition,” he said.

Meanwhile, Balisacan pointed out that past transactions that had entered Phase II review all had Size of Transaction values within the P2 billion to P8 billion range, suggesting that such higher Size of Transaction values could indicate potential harm to the market.

The PCC announced last Monday that it would recalibrate the thresholds for required notifications of M&As to keep pace with recent developments in the economy.

It decided to raise the new thresholds to P5 billion for the Size of Person and P2 billion for the Size of Transaction as defined in the implementing rules and regulations from the previous P1 billion threshold.

The Size of Person refers to the value of assets or revenues of the ultimate parent entity of at least one of the parties, while Size of Transaction refers to the value of the assets or revenues of the acquired entity.

“The commission is working to establish frameworks the threshold adjustment included, to ensure the speedy and transparent processing of transactions that, from the onset, do not appear to pose any significant risk on healthy market competition. This will ensure a win-win situation for the commission and the business community—while firms notifying non-problematic transactions will be able to do business more easily, the PCC will be able to devote more resources to cases that may substantially lessen competition,” Balisacan said.

For this year, the PCC chief expects the appetite for M&As to remain strong given the country’s economic performance and vibrant business environment.

As of March 5, the PCC has received a total of 152 notifications with a combined value of P2.25 trillion.

Of these M&A notifications, 127 have been approved while the rest are undergoing different stages of review.