The primary merger control legislation is the Philippine Competition Act (Republic Act No 10667) (PCA), its implementing rules and regulations, and other rules and guidelines issued by the Philippine Competition Commission (PCC).
The Revised Corporation Code (Republic Act No 11232) as well as various issuances by the Securities and Exchange Commission (SEC) may also be applicable.
The Guidelines on the Computation of Merger Notification Threshold (“Merger Rules”) provides the rules in determining whether a merger, acquisitions of shares of assets, or joint venture is subject to compulsory notification.
The Foreign Investments Act (Republic Act No 7042) and its implementing rules and regulations provide the general framework for foreign investments in the Philippines. Foreign equity investments in certain industries may be subject to restrictions as provided in the 1987 Constitution and various pieces of legislation.
The Foreign Investment Negative List (FINL) identifies the industries that are subject to nationality restrictions and indicates the allowed foreign equity. It compiles the foreign ownership restrictions found in various laws and regulations, and is amended from time to time to reflect changes in the legislation.
Various government agencies regulate foreign investments in the Philippines. However, the primary agency concerned to ensure compliance with the rules and regulations on foreign investment in the Philippines are the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). The Philippine Competition Commission (PCC), on the other hand, has original and primary jurisdiction to review proposed mergers, acquisitions, and joint ventures. Other government authorities may assist in enforcing and reviewing compliance with the relevant regulation on foreign investment depending on the industry where the entity operates, and the incentives availed of.
Notification is compulsory if the transaction breaches the compulsory notification thresholds: the aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity (UPE) of at least one of the acquiring or acquired entities, including that of all entities that the UPE controls, directly or indirectly, exceeds PHP6b billion (size of the party test); and the value of the transaction exceeds PHP2.4 billion (size of the transaction test).
Computing the value of the transaction depends on the type of the transaction.
Mergers and Acquisitions
For mergers or acquisition of assets in the Philippines, the amount is computed based on the value of the assets subject of the transaction or the gross revenues generated in the Philippines of such assets.
Acquisitions of Voting Shares
For acquisition of voting shares of a corporation or of an interest in a non-corporate entity, the amount is computed based on the aggregate value of the assets of the acquired entity or gross revenues generated by such assets in the Philippines. Further, as a result of the proposed acquisition, the entity acquiring the shares, together with their affiliates, should own voting shares or interests of:
For joint ventures, the amount is computed based on the aggregate value of the assets that will be contributed into the proposed joint venture or the gross revenues generated by such assets, including any amount of credit or any obligations of the joint venture which any of the joint venture parties agreed to extend or guarantee.
A merger or acquisition consisting of successive transactions which shall take place within a one-year period between the same parties or entities under common control, shall be treated as one transaction (“Creeping Transactions”).
Parties which breach the thresholds are required to notify the PCC within 30 days from the execution of the definitive agreement.
For Creeping Transactions, if a binding preliminary agreement provides for such successive transactions, the entities shall provide notification on the basis of such preliminary agreement. If there is no binding preliminary agreement, notification shall be made when the parties execute the agreement relating to the last transaction which, when taken together with the preceding transactions, satisfies the thresholds.
A transaction which meets the notification threshold but was not notified to the PCC or notified but consummated prior to the expiration of the waiting period, is considered void and will subject the parties and their ultimate parent entities to fines and penalties to an administrative fine of 1% to 5% of the value of the transaction.
Parties which fail to notify the PCC within the period for notification but has yet to consummate the transaction will be fined in the amount of half of 1% of the value of transaction, but not exceeding PHP2 million.
The decisions imposing the penalties are made public.
Joint ventures, mergers and acquisitions of shares and assets, and issuance of new company shares have been found by the PCC to have failed to comply with the compulsory notification requirements.
Joint ventures refer to a business arrangement where two or more entities or group(s) of entities contribute capital, services, assets, or a combination of the foregoing to undertake an investment activity or a specific project where each entity shall have the right to direct and govern the policies of the joint venture with the intention to share in both profits and risks. An acquisition of shares may be considered as a joint venture if joint control will exist between or among the new existing joint venture partners after the acquisition.
Other definitive agreements, which grant parties the option to acquire the share or other conversion agreements allowing other entities to gain or obtain control over an entity may be potentially covered by the notification requirement.
The following transactions are exempt from the rules on compulsory notification:
Control refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise. Control is presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than half of the voting power of an entity, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control.
Control also exists even when an entity owns 50% or less of the voting power of another entity when:
With respect to joint ventures, the grant of veto powers may also be deemed to vest control if the veto rights relate to strategic decisions in the business policy or activities of the corporation, such as the appointment of corporate officers or key management personnel, determination of the budget, adoption of and amendments to the business plan and other similar aspects of business management. The existence of any of such right, depending upon the content of the veto right and the importance of this right in the context of the specific business of the corporation, may be sufficient to grant control.
See 2.1 Notification. There are no special jurisdictional thresholds applicable to particular sectors.
The Size of the Party Test is computed based on the value of the assets and revenues in the Philippines of the UPE, including all the entities it controls. The Size of the Transaction Test is computed based on the value of the assets being acquired or/and gross revenues generated by the assets being acquired, or of the acquired entity and entities it controls, depending on the type of transaction.
In determining the value of the assets being contributed for joint venture transactions, the following shall be included:
The aggregate value of assets/revenues in the Philippines shall be that as stated on the most recent audited financial statements, or if the entity is not required to prepare audited financial statements, the last regularly prepared balance sheet in which those assets are accounted for.
The value of the assets/revenues in the Philippines of an entity shall be expressed in Philippine Peso. If the financial statements were presented in a foreign currency, value of the assets shall be converted to Philippine Peso according to the average, over the twelve months of that financial year, of the foreign exchange rate quoted by the BSP.
To satisfy the Size of Party Test at least one of the notifying UPEs, including all entities it controls, directly or indirectly (the UPE and all entities it controls, directly or indirectly, collectively comprise the “Notifying Group”) must have either aggregate annual gross revenues “in”, “into” or “from” the Philippines or have assets “in” the Philippines exceeding PHP6 billion.
The annual gross revenues from sales “in”, “into” or “from” the Philippines of the Notifying Group shall be that as stated in the UPE’s consolidated financial statements, in accordance with the general principles discussed above. If based on the accounting principles adopted by the UPE, it does not prepare consolidated financial statements, the annual gross revenues shall be determined by aggregating the gross revenues from sales “in”, “into” or “from” the Philippines of the entities within the Notifying Group, as booked or reflected in their separate statements of income and expenses. Note that the gross revenues from sales “in”, “into”, or “from” the Philippines of an entity within the Notifying Group that is jointly controlled with a different entity shall be proportionate to its ownership interest. Changes in the business are reflected in the financial statements in accordance with accounting principles.
The PCA covers entities engaged in trade or industry in the Philippines or international transactions which have direct, substantial and reasonably foreseeable effects in trade in the Philippines. Thus, even if the transaction occurs offshore or involves an entity not based in the Philippines, the transaction may be subject to notification to and review by the PCC if the notification thresholds are met. For the purposes of computing the notification thresholds, the assets or revenues generated by the acquired or acquiring entity in the Philippines, including the entities they control, are material.
There is no market share jurisdictional threshold.
Joint ventures may be formed by:
Joint ventures are subject to compulsory notification if the notification thresholds for size of the party and size of the transaction, as discussed above are met. For purposes of computing the size of the party, the contributing entities shall be deemed the acquiring entity and the joint venture shall be deemed the acquired entity.
The size of the transaction is based on the aggregate value of the joint venture partners’ assets that will be combined in the Philippines or contributed into the joint venture, or the gross revenues generated in the Philippines by such assets, exceed PHP2.4 billion.
Calculating Asset Value
For purposes of calculating the aggregate value of the assets to determine the size of the transaction, the following shall be included:
In the case of a formation of a joint venture through acquisition of shares in an existing corporation, the assets to be combined through such acquisition will include the assets or revenues generated by the assets of the existing corporation.
The PCC, on its own or upon notification, has the power to review mergers and acquisitions having a direct, substantial and reasonably foreseeable effect on trade or industry in the Philippines.
The statute of limitation for any action arising from a violation of any provision of the PCA and its implementing rules and regulations is five years:
The parties to transactions which are subject to compulsory notification are not allowed to consummate the transaction before either the approval of the transaction or the expiration of the relevant periods of review.
A transaction that meets the thresholds and does not comply with the waiting periods before consummation shall be considered void and will subject the parties to an administrative fine of 1% to 5% of the value of the transaction. Since parties generally wait for the decision after notification before consummating the agreement, the PCC has not yet published a decision penalising parties who consummated the agreement before the PCC has issued its decision.
Transactions which meet the notification threshold are required to comply with the mandatory notification to the PCC, except those transactions which are expressly exempted from the notification requirements as provided in 2.3 Types of Transactions. There are no exceptions to the waiting periods for transactions subject to compulsory notification. Even if the transaction is not included among the exempt transactions, parties may consider applying for Letter of Non-coverage to confirm that the transaction is not subject to compulsory notification, such as when the notification thresholds are not met or the transaction does not involve any change in control over the entity.
Parties can only consummate a notified transaction without the clearance of the PCC if the PCC fails to issue a decision within the periods provided in the law. The PCA provides that the PCC has 30 days from commencement of Phase 1 review to review the transaction. Within those 30 days, the PCC shall, if necessary, inform the parties of the need for a more comprehensive and detailed analysis of the transaction under a Phase 2 review, and request other information and/or documents that are relevant to its review.
The issuance of the request has the effect of extending the period within which the agreement may not be consummated for an additional 60 days. The additional 60-day period shall begin on the day after the request for information is received by the parties. The parties shall provide the requested information within 15 days from receipt of the said request, otherwise, the notification shall be deemed expired and the parties must refile their notification.
In case the PCC does not issue a decision within the period provided by law, the transaction is deemed approved.
Parties which breach the thresholds, are required to notify the PCC within 30 days from the execution of the definitive agreement. See 2.2 Failure to Notify.
Notification may be made based on a binding preliminary agreement upon its execution even if the complete and final terms and conditions of the merger or acquisition are yet to be agreed upon. A binding preliminary agreement refers to such terms and conditions on which parties to a planned merger or acquisition have reached a consensus and on the basis of which the parties intend to complete the transaction in good faith. The agreement may be in any form, such as a memorandum of agreement, term sheet or letter of intent.
If there is no binding preliminary agreement or parties do not wish to notify at that stage, notification to the PCC may be made prior to the execution of the definitive agreement(s) relating to the merger or acquisition. The terms and conditions of the most recent draft of the definitive agreement or agreements shall be the basis of the notification, provided that the parties issue an undertaking that they intend to sign the agreement in good faith and to send to the PCC a copy of the executed version. However, if the parties amended or made changes to the agreement, the parties will be required to re-notify the PCC.
Notification Filing and Phase 1 review is subject to a fee of PhP250,000.00.
Phase 2 review is subject to a fee of 1% of 1% of the value of the transaction which shall not be less than PHP1 million or exceed PHP5 million.
The fees are payable within ten days from receipt of an Order of Payment from the PCC.
If notice to the PCC is required for a merger or acquisition, then all acquiring and acquired pre-acquisition UPE or any entity authorised by the UPE to file notification on its behalf must notify.
The notifying parties shall accomplish the Notification Form of the PCC. This includes information on the parties to the transaction, value of the transaction and the assets and shares, operations of the parties in the Philippines, horizontal and vertical relationships and other relevant information. Documents to be submitted include:
The submission must be in English. Certifications must be notarised, and consularised or apostilled, if executed abroad.
Incomplete notifications shall not be deemed filed and shall not stop the running of the 30-day period after execution of the definitive agreement within which the parties are required to file. Failure to complete the notification shall deem it as unfiled and subject the parties to the penalties for failure to notify.
The Notification Form has a certification that the information and all appendices and attachments are complete, true and correct to the best of the ability of the authorised representative filing the notification. If the party is deemed to have supplied incorrect or misleading information, the PCC may, after due notice and hearing, impose upon the party fines of up to PHP1 million. The party may also be liable for perjury.
The PCC has yet to issue a decision fining a party as having supplied inaccurate or misleading information. If the information is unclear or incomplete, the PCC usually requests the parties to provide clarifications.
Upon submission of the notification, the PCC will conduct a sufficiency check over a 15-day period to determine if they have sufficient information to conduct a Phase 1 review. If the PCC requests further information about the transaction, the parties will have 15 days to provide this information, and the PCC will then have 15 further days to conduct a second sufficiency check. If the PCC determines that the information is sufficient, the parties will be directed to pay a filing fee.
The Phase 1 review period will commence on the first business day following the date of payment of the filing fee and will last for a maximum period of 30 days. The Phase 1 review involves an initial assessment by the PCC to determine if the Transaction raises any competition concerns under the PCA that would warrant a more detailed review. If no competition concerns are raised at this stage, the Transaction will be approved by the PCC within the Phase 1 review period.
However, if, for any reason, the PCC identifies competition concerns during the Phase 1 review or determines that it has insufficient information to form a conclusion as to the potential impact of the Transaction on competition in the market, the PCC will refer the Transaction for a Phase 2 review.
The Phase 2 review shall commence on the day after service by the PCC of a Phase 2 notice. The PCC will then have a period of 60 days to conduct the Phase 2 review, during which period the transaction cannot complete. In practice, the Phase 2 review period may last longer than 60 days if the PCC requires more time to determine if further information is required to conduct the Phase 2 review, and if so, for the parties to provide such further information.
Prior to filing a notification, parties that are required to notify may inform the PCC of their proposed transaction and request a pre-notification consultation. During consultations, the parties may seek non-binding advice on the specific information needed for the notification. The PCC encourages pre-notification consultations and this process is treated confidentially.
Requests for information are common. The PCC is allowed to issue a Notice of Deficiency if the party’s notification is insufficient before commencing Phase 1 review.
The PCC may conduct an expedited review of the transaction for a shortened review period of 15 days for Phase 1 review of the following qualified transactions:
In reviewing transactions, the PCC will assess whether the transaction is likely to result in substantially preventing, restricting or lessening competition in the relevant market.
Market definition focuses on the extent to which customers would likely switch from one product to another (“Relevant Product Market”), or from a supplier in one geographic area to a supplier in another area (“Relevant Geographic Market”), in response to changes in prices, quality, availability, or other features.
In determining the relevant market, the PCC considers the following factors, among others:
Once a market is defined, the PCC will, where circumstances require, consider market shares and concentration as part of the evaluation of competitive effects.
To determine whether there are overlaps in the parties’ activities, the PCC looks at horizontal and vertical relationships between the parties in the relevant market. There is a horizontal relationship when the parties and/or entities within their respective Notifying Groups (which include subsidiaries, affiliates and other entities controlled by the Ultimate Parent Entity) provide products or services that directly compete in the same market. There is a vertical relationship when the parties and/or entities within their respective Notifying Groups operate at different levels of a production or supply chain (such as a when an entity from a party’s Notifying Group produces goods that use raw materials processed by an entity in the other Notifying Group).
An “overlap” in the form of a vertical or horizontal relationship does not necessarily void the transaction unless it is shown that the transaction is anti-competitive.
The PCC assesses market definition within the context of particular facts and circumstances of the transaction under review. Relevant markets identified in past investigations in the same industry or investigations conducted in other jurisdictions may be informative but are not necessarily applicable to PCC’s assessment of transactions.
The PCC looks at unilateral effects and co-ordinated effects. In analysing the potential of a horizontal merger to result in anti-competitive unilateral effects, the PCC assesses whether the merger is likely to harm competition significantly by creating or enhancing the merged firm’s ability or incentives to exercise market power independently. In analysing the potential for co-ordinated effects, the PCC assesses whether the merger increases the likelihood that firms in the market will successfully co-ordinate their behaviour or strengthen existing co-ordination in a manner that harms competition.
Anti-competitive mergers may be exempted from prohibition by the PCC when the parties establish that the merger has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that will likely result from the transaction. Efficiencies that increase competition in the market may also be considered.
In order to be taken into account by the PCC, the efficiencies must be demonstrable, with detailed and verifiable evidence of anticipated price reductions or other benefits. Moreover, the efficiency gains must be merger-specific and consumers will not be worse off as a result of the merger. For that purpose, efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur.
There is no explicit authority for the PCC to consider “non-competition” issues when reviewing transactions.
An acquisition of shares in a corporation will be deemed as a joint venture transaction if joint control will exist between or among the new and existing joint venture partners post-transaction.
In the context of joint ventures, joint control refers to the ability of the joint venture partners to substantially influence or direct the actions or decisions of the joint venture, whether by contract, agency or otherwise. Joint control exists when an entity has the ability to determine the strategic commercial decisions of the joint venture (positive joint control), or to veto such strategic decisions (negative joint control).
As discussed, for purposes of calculating the aggregate value of the assets to determine the size of the transaction, any amount of credit or any obligations of the joint venture which any of the joint venture parties agreed to extend or guarantee to the joint venture at any time shall be included.
The PCC may prohibit or interfere with a transaction if it will likely result to substantially lessening, restricting or preventing competition in the relevant market. The PCC may prohibit the implementation of the agreement or require modification or amendments to address competition concerns. It may also impose penalties on the parties and nullify transactions which were consummated in violation of the compulsory notification requirements.
Decisions shall be in writing and the merger parties shall be furnished a certified copy of the decision. A non-confidential version may also be furnished to such persons as the PCC considers appropriate and published on the PCC Website for information of the public.
Should there be a finding that a merger is likely to substantially prevent, restrict, or lessen competition, the parties are allowed to negotiate remedies to address the competition concerns. At any stage of the review, the parties may propose to amend or modify the agreements or undertake commitments that will remedy, mitigate, or prevent the competition concerns identified by the PCC as arising from the merger.
Before accepting any commitments, the PCC must be of reasonable belief that these are sufficient to clearly address the competition concerns and are proportionate to them. In instances where PCC considers the commitments proposed by the merger parties as a suitable remedy, PCC may decide to consult the concerned stakeholders or the public and issue an invitation to comment on its website. Third parties may also be approached on an individual basis for their views.
Changes and Alternative Remedies
Should the PCC decide that changes need to be made to the commitments in light of responses to the consultation, it will discuss the material changes with the parties.
The PCC may consider and impose alternative remedies, notwithstanding the merger parties’ proposals. The PCC will adopt a Commitment Decision once it decides to accept the commitments of the merger parties. Where the PCC has rendered a Commitment Decision, the party who provided the commitment may apply to PCC to vary, substitute or release such commitment.
There is no strict legal standard. However, in determining the remedy or set of remedies that would be appropriate, reasonable and practicable to address the adverse effects of the merger on competition, the PCC shall take into account the adequacy and effectiveness of the action in preventing, remedying or mitigating the anti-competitive effects of the merger.
The PCC considers two types of remedies to address competition concerns — structural remedies and behavioural remedies.
Structural remedies are measures that directly alter market structure and address issues that give rise to competition problems. They include divestitures (forced sale of business units or assets, either in full or partial), licensing (compulsory licensing of legal rights, usually intellectual property rights), rescission (undoing a completed transaction) and dissolution (ending a legal entity).
Behavioural remedies, meanwhile, are measures that directly alter the behaviour of an entity. The PCC may impose both structural and behavioural remedies simultaneously.
At any stage of the review, merger parties may propose commitments that will remedy, mitigate, or prevent the competition concerns identified by the PCC as arising from the merger.
Upon submission of a proposed commitment, the review periods shall be suspended for a period of 60 days. However, PCC may shorten such period, or extend for a maximum of 30 days (“Commitment Review Period”) by submitting a Model Request and Waiver together with its proposed commitment. Once the Commitment Review Period expires without PCC’s acceptance of the proposed commitments, Phase 1 or 2 review shall resume.
The PCC will confer with the parties to discuss their proposed commitments. Should the PCC decide that changes need to be made to the commitments in light of responses to the consultation, it will discuss the material changes with the parties.
Alternative Remedies and Applications to the PCC
The PCC may consider and impose alternative remedies, notwithstanding the merger parties’ proposals. The PCC will adopt a Commitment Decision once it decides to accept the commitments of the merger parties. Where PCC has rendered a Commitment Decision, the party who provided the commitment may apply to PCC to vary, substitute or release such commitment. The written application shall contain the following:
All explanations should be accompanied by relevant supporting documents and certified under oath by an authorised representative of the party. Before varying, substituting or releasing a commitment, PCC will consult with such persons as it deems appropriate.
There is no PCC standard approach regarding the conditions and timing for remedies, as they are imposed or agreed upon on a case to case basis.
This timing for the enforcement of the remedies will depend on the nature of the remedy — specifically, whether or not it is intended to take place prior to consummation (such as a simple divestment of particular assets) or after consummation (such as submission of monitoring reports, etc).
The penalties for failure to comply with the commitments or conditions imposed by the PCC are usually indicated in the decision issued by the PCC for approval of the transaction. In addition to these penalties, the failure by the parties to comply with a ruling, order, or decision of the PCC after due notice and hearing, may be imposed a penalty of not less than PPHP50,000 up to PHP2 million for each violation. In addition, a similar amount of penalty shall accrue for each day of non-compliance beginning 45 days from the time that the said ruling, order, or decision was served until the party fully complies.
Decisions shall be in writing and the merger parties shall be furnished a certified copy of the decision. A non-confidential version may also be furnished to such persons as the PCC considers appropriate and published on the PCC Website for information of the public.
To date, there have been no published decisions where the PCC required remedies or prohibited foreign-to-foreign transactions.
There is no requirement for separate notification of ancillary restraints. The assessment of the PCC of a transaction is holistic and, therefore, looks at all the provisions of and mechanisms in the agreement embodying the transaction, including ancillary restraints, if any. The PCC is not prohibited from reviewing or including in its decision any related arrangements or agreements imposing ancillary restraints if these will likely substantially prevent, restrict or lessen competition in the relevant market.
In relation to a review, the PCC has the power to require production of documents or information from the third parties and consult them in the process of reviewing commitments. The PCC may contact third parties, such as customers, suppliers or competitors, by means of market calls or inquiry letters in order to obtain relevant information regarding the market, their views on the merger, any competition issues it may raise and how they will be affected. Third parties may also include other governmental entities, sectoral regulators, industry associations, consumer bodies, think-tanks, market research firms or centres for information, among others.
Since the PCC was recently established, it usually contacts third parties in reviewing transactions to gather information about the relevant market and the possible effects of the transaction.
The decision of the PCC on a transaction subject to compulsory notification is made public. In publishing a decision, the PCC provides a summary of the transaction, subject to the parties’ claims of confidentiality.
Commercial information may be subject to claims of confidentiality. Such claims must be substantiated, such that it must be accompanied by a detailed explanation why particular parts of their submissions should not be disclosed. Additionally, a non-confidential version should be provided at the same time as the original submission.
The PCC may share the non-confidential versions of submissions with the merger parties or third parties. Unless there is a claim of confidentiality, it will be presumed that none of the information contained in a party’s submission is confidential. The following classes of information, however, are not generally considered to be confidential by PCC:
At any time before the case is submitted for decision, the PCC may consult a sector regulator or other relevant government agencies from foreign jurisdictions, if appropriate.
Information, including documents, shall not be communicated or made accessible by the PCC, insofar as it contains trade secrets or other confidential information, the disclosure of which is not considered necessary by the PCC for the purpose of the review. If a transaction is under review in multiple jurisdictions, parties to the transaction may waive the confidentiality protections contained to allow the PCC to exchange otherwise protected information with competition authorities in other countries.
Parties to the merger may file a motion for reconsideration of a decision, order, or resolution of the PCC within 15 days from receipt thereof. A motion for reconsideration shall be based on any of the following grounds:
Final orders or decisions of the PCC shall be appealable to the Court of Appeals within 15 days from the notice of the judgment in accordance with the Rules of Court. The appeal shall not stay the final order or decision sought to be reviewed, unless the Court of Appeals shall direct otherwise upon such terms and conditions it may deem just. In the appeal, the PCC shall be included as a party respondent to the case.
See 8.1 Access to Appeal and Judicial Review. There have been successful appeals of decisions of the PCC. The Court of Appeals reversed the decision of the PCC and upheld the legality of the co-acquisition by PLDT Inc and Globe Telecom Inc, two of the biggest telecommunication providers in the Philippines, of the telecommunications assets of San Miguel Corp.
As a general rule, third parties cannot appeal a decision clearing a transaction. The PCC may also initiate and conduct a fact-finding or preliminary inquiry for the enforcement of the PCA upon a verified complaint filed by an interested party.
There have been no significant changes to the PCA, except the adjustment to the notification threshold which has been increased to PHP6 billion for the size of the party test and PHP2.4 billion for the size of the transaction test.
The total amount of fines the PCC imposed in 2019 reached PHP114.6 million — four times greater than in 2018. The PCC likewise launched its Leniency Program, a whistle-blower-type program that is a staple in most jurisdictions. The Supreme Court likewise issued the Rule on Administrative Search and Inspection, which strengthens PCC’s ability to conduct dawn raids.
The past year, the PCC decided on its first abuse of dominance case. It involved a property developer that imposed a sole Internet service provider on its residents. This prevented them from availing themselves of alternative and cheaper Internet service.
Among its corrective measures, the PCC ordered the property developer to pay a fine of PHP27 million and invited other Internet service providers to offer their services to residents. Such was the impact of this decision that other property developers with similar conduct initiated remedial actions on their own practices — a clear example of deterrence and voluntary compliance as a result of effective enforcement.
The PCC also blocked a major food manufacturer’s proposed acquisition of a sugarcane milling entity, as it decided that the acquisition would substantially lessen competition in the market for sugarcane milling services in Southern Luzon. The prohibition of the transaction supposedly prevented the creation of a monopoly that could significantly harm the welfare of sugarcane farmers. Supposedly, this demonstrates the PCC’s growing focus on stakeholders who belong to priority sectors.
According to the PCC, it will focus their competition analysis and enforcement on telecommunications, retail, energy and electricity, transportation, construction, health and pharmaceuticals, and food. They also intend to further streamline the merger review process by issuing regulations exempting certain transactions from merger review.
In response to the COVID-19 crisis, the Philippines instituted community quarantines which suspended on-site work for government offices. The PCC issued Commission Resolutions No 7 to 10 series of 2020 suspending the merger processes, including acceptance of new notifications and evaluation of sufficiency of notification forms and letters of non-coverage, until the Enhanced Community Quarantine (ECQ) has been lifted.
The PCC later issued Commission Resolution No 11-2020 dated 18 May 2020, which adopts the Interim Guidelines on the Operations of the Mergers and Acquisitions Office during the Modified Enhanced Community Quarantine (MECQ). The Guidelines provide that the suspension of the merger processes shall be lifted effective 18 May 2020. It also provided that the 30-day Notification Period is waived during the MECQ. Parties may file Notification Forms at any time after the signing of definitive agreements but prior to any acts of consummation; provided, that the 30th day of the Notification Period falls within the community quarantine period commencing on 13 March 2020.
Submissions during the MECQ shall be done electronically through the online filing facility on the PCC website. Parties submitting documents to the PCC must submit a written consent signed by their authorised signatory granting the Commission staff permission to access the submitted documents and information outside the office premises of the PCC. Hard copies of all documents submitted electronically must be submitted to the PCC within seven working days from the lifting of the MECQ over the area where the PCC office is located.
On 2 June 2020, the PCC adopted Commission Resolution No 12-2020 extending the effectivity of the Interim Guidelines during the General Community Quarantine (GCQ).
Merger Control in the Philippines
Merger Control under the Philippine Competition Act
The Philippines first appeared on the global map of merger control regimes with the passage of the Philippine Competition Act (PCA) on 21 July 2015. The PCA is a landmark legislation that introduced a comprehensive legal framework to promote competition, prohibit anti-competitive agreements, abuse of dominance, and anti-competitive mergers and acquisitions.
The Philippine Competition Commission (PCC) was created under the PCA as an independent quasi-judicial body with original and primary jurisdiction to enforce the PCA and its implementing rules and regulations (PCA-IRR). The PCC has the power to review mergers and acquisitions, and to prohibit those that will substantially prevent, restrict, or lessen competition in the relevant market.
Mandatory notification regime
The PCA provides for mandatory notification of mergers and acquisitions, which satisfy the notification thresholds under applicable regulations, and requires PCC approval for these transactions prior to consummation.
Notifiable transactions cover a “merger”, which refers to the joining of two or more entities into an existing entity or to form a new entity (consolidation), including joint ventures, and an "acquisition", which refers to the purchase or transfer of securities or assets, through contract or other means, for the purpose of obtaining control by one or more entities over one or more entities.
Based on a press release from the PCC, as of February 2020, the PCC has received a total of 207 transactions with a combined value of PHP 3.6 Trillion (approximately USD 72.12 Billion). Of this number, the PCC has approved 192 transactions, with a minority being subject to conditions and voluntary commitments, and prohibited one transaction that the PCC determined would result in a monopoly. The remainder are currently undergoing various stages of review.
Mandatory notification thresholds
The PCA-IRR provides for two tests to determine whether a particular transaction meets the thresholds for mandatory notification to the PCC.
The Size of Person is met if the aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity (UPE) of at least one of the buyer or target entities, including their respective controlled entities, exceeds the threshold amount. The UPE refers to the juridical entity that, directly or indirectly, controls a party to the transaction, and is not controlled by any other entity.
Size of transaction
The Size of Transaction is met under the following circumstances.
First, for a proposed merger or acquisition of assets in the Philippines, if the aggregate value of the assets in the Philippines, or the gross revenues generated in the Philippines by assets to be acquired, exceed the threshold amount;
Second, for a proposed merger or acquisition of assets outside the Philippines, if the aggregate value of the assets in the Philippines of the buyer, and the gross revenues generated in the Philippines by assets acquired outside the Philippines, both exceed the threshold amount;
Third. for a proposed merger or acquisition of assets inside and outside the Philippines, if the aggregate value of the assets in the Philippines of the buyer, and the gross revenues generated in or into the Philippines by assets acquired, whether inside or outside the Philippines, both exceed the threshold amount;
Fourth, for a proposed acquisition of voting shares in a corporation or interests in a non-corporate entity, if the aggregate value of the assets in the Philippines or the gross revenues from sales in, into, or from the Philippines of the target (or entities it controls) other than assets that are shares of any of those controlled corporations exceed the threshold amount, and, as a result of the proposed acquisition, the buyer, together with its affiliates, would own 35%, or if already owning 35% pre-transaction, shall own more than 50%, of the voting shares of the corporation, or of the profits of the non-corporate entity or assets of that non-corporate entity on its dissolution, as the case may be; and
Finally, for a notifiable joint venture, if either the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture, or the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed the threshold amounts.
The original threshold of PHP1 billion (approximately USD20.01 million) for both Size of Person and Size of Transaction tests as provided in the PCA, has been adjusted three times pursuant to PCC Memorandum Circular No 18-001 dated 1 March 2018, which provides for the automatic adjustment of the notification thresholds on the March 1st of every year, based on the nominal gross domestic product of the previous year.
As of 1 March 2020, the threshold for the Size of Person is PHP6 billion (approximately USD120 million), while the threshold for the Size of Transaction is PHP2.4 billion (approximately USD48.08 million).
Pursuant to PCC's Guidelines for the Notification of Joint Ventures, an acquisition of voting shares that meets the Size of Person and the financial thresholds for the Size of Transaction, but does not meet the required post-transaction percentage of voting shares, may still be notifiable as a joint venture, provided that such acquisition results in the buyer exercising joint control, together with the target's existing shareholders, over the target. In the same guidelines, "joint control" referred to the ability of two or more entities to substantially influence or direct the actions or decisions of another, whether by contract, agency or otherwise. Joint control exists when an entity has the ability to determine the strategic commercial decisions of the joint venture (positive joint control), or to veto such strategic decisions (negative joint control).
Exemptions to mandatory notification
In an effort to support the Philippine government's thrust to ease doing business in the country, and to ensure that the PCC shall devote its resources to only reviewing transactions which may have substantial impact on the Philippine market, the PCC has exempted certain types of transactions from mandatory notification (Exempt Transactions). These are:
Parties to an Exempt Transaction may secure a Letter of Non-Coverage from the PCC.
An Exempt Transaction may still be subject of a motu proprio review by the PCC, if in the PCC’s view, the transaction may result in substantial lessening of competition in the relevant markets. The PCC exercised this power when it reviewed the Acquisition by Grab Holdings, Inc and MyTaxi.PH, Inc (Grab) of assets of Uber B.V. and Uber Systems, Inc (Uber) in 2018, despite not satisfying the Size of Party and Size of Transaction thresholds, and after flagging potential competition concerns resulting from the acquisition. The transaction was eventually approved after the PCC accepted voluntary commitments from Grab.
Merger Notification Procedure
In November 2017, the PCC issued the Rules on Merger Procedure (Merger Rules), which provided for the detailed procedure and timelines for merger notification.
Under the Merger Rules, a transaction that meets the mandatory notification thresholds must be notified by the pre-acquisition UPE of each of the buyer(s) and target entity(ies) to the PCC's Mergers and Acquisitions Office (MAO) within 30 days from signing of the definitive agreement for the transaction. A definitive agreement sets out the complete and final terms and conditions of a merger or acquisition, including the rights and obligations between and among the transacting parties. Prior to the Merger Rules, notifications must be submitted to the MAO before the execution of the definitive agreement.
Following the MAO's determination of sufficiency of the notification, the PCC conducts a two-phase review of the proposed transaction.
Phase 1 review, which involves an assessment to determine if the transaction raises any competition concerns, and extends for a maximum period of thirty 30 calendar days. If at the end of the thirty-day review period the PCC determines that the transaction does not raise any competition concerns, it may clear the transaction or decide to take no further action. Phase 2 review, which shall take place if the PCC is unable to conclude at the end of the Phase 1 review that the proposed transaction will not result in substantial lessening of competition in the Philippine markets, and extends for a maximum period of 60 calendar days.
Parties are prohibited from consummating any part of the transaction until the PCC clears the same, or after expiration of the relevant review period for Phase 1 or Phase 2, as the case may be, without the PCC issuing any decision.
Based on the PCC Chairman's Year-End Report, in 2019, the PCC spent an average of 21 calendar days for the 30-day Phase 1 review and an average of 52 calendar days for the 60 day Phase 2 review.
Expedited merger review
In July 2019, the PCC issued the Rules on Expedited Merger Review (Expedited Review Rules) which aims to fast-track the review of transactions that are deemed less likely to result in substantial lessening of competition in the Philippine markets. The Expedited Review Rules reduced the waiting period for qualified mergers and acquisitions (including joint ventures) to 15 working days, compared to the review period of 30 calendar days for Phase 1 review under the regular notification procedure.
Under the Expedited Review Rules, the following transactions may qualify for expedited review:
The PCC may exercise its discretion determine that the proposed merger or acquisition that qualifies for expedited review raises substantial competition concerns, and require the parties to undergo the regular review process.
It is notable that while the Expedited Review Rules shortens the review period for notifiable transactions, the PCC, has not received any notifications under the Expedited Review Rules since it took effect on July 2019.
Penalties for violation of the mandatory notification rules
The PCA penalises gun-jumping or the consummation of a notifiable transaction before obtaining approval from the PCC or termination of the relevant review periods, with an administrative fine ranging from 1% to 5% of the transaction value. Further, the transaction shall be deemed void. Parties may also be fined in an amount equivalent to half of 1% of 1% of the transaction value but not exceeding PHP2 million (approximately USD40,072) for notification of a transaction after the required notification period, provided that the transaction has not been consummated.
Developments in Philippine Merger Control
Since the current framework for merger notification under the PCA-IRR took effect in July 2019, the PCC has issued decisions that continue to shape the landscape and clarify the requirements for merger control the Philippines.
Determination of the UPE and the notifying group
Under the Merger Rules, entities which are controlled by the same UPE are considered members of the same notifying group (Notifying Group), and the latter serves as basis to determine the scope of actual or potential overlaps between the parties to, and the markets which may be affected by, the proposed transaction. While the PCA-IRR identifies a UPE as a juridical entity, the PCC has, in several transactions, determined that a UPE may also refer to a natural person, and entities which are either owned or controlled by the same individual may be considered as members of the same Notifying Group.
In the Statement of Concerns from the MAO on the Acquisition by Top Frontier Holdings, Inc (Top Frontier) of shares in Holcim Philippines, Inc. (Holcim), the MAO considered certain corporations as belonging to the same Notifying Group as Top Frontier, despite having different corporate shareholders. This was based on the MAO's assessment that the corporations were under common control by having the same individual that occupied the position of President in some of the corporations, and the close relationship between certain key officers and shareholders in these corporations, among other factors. Since corporations within the same Notifying Group may not be considered as competitors under the PCA, the MAO found that there are fewer players in the market, and the proposed transaction will eliminate an important source of competitive constraint on Top Frontier in the relevant market.
In another case, which involved the acquisition by Alibaba-owned payment systems provider Alipay Singapore Pte Ltd (Alipay) of an indirect stake in the country's leading electronic money services provider, Globe Fintech Innovations Inc (GCash), the MAO considered how both Alipay and Lazada, a leading e-commerce platform, have connections with a common Chinese billionaire, and may be considered as part of the same Notifying Group. This raised competition concerns by way of potential foreclosure of other e-money service providers in Lazada's platform or the grant of preferred terms for GCash users, although such concerns were eventually addressed.
Additionally, the MAO also reviewed Alipay's indirect minority interest in another electronic money service provider, and the potential for Alipay to influence the latter's commercial decisions through veto rights and other shareholder arrangements. If the other e-money service provider were determined to be part of Alipay's Notifying Group, the transaction would give rise to competition concerns as it would have resulted in Alipay gaining control over three of the then handful of non-bank e-money issuers in the Philippines. The MAO eventually determined that the minority shareholder arrangements that were granted to Alipay in one of the e-money service providers did not grant Alipay control, and the company was not considered as forming part of Alipay's Notifying Group.
From the foregoing, it is important to note that PCC does not confine itself to how the merger parties identify their UPE and Notifying Groups in the notification. Instead, the PCC also considers substantial links such as common ownership, and interlocking directors and officers, in determining the entities that will be included in its analysis of overlaps and competitive effects of the transaction.
Evaluation of remedies
The PCC is enjoined by the PCA to impose structural remedies only if there is no equally effective behavioural remedy, or if the behavioural remedy would be more burdensome for the enterprise concerned.
In the Grab-Uber merger, the PCC accepted the voluntary commitments of Grab which were intended to have the effect of simulating pre-transaction conditions such as by requiring Grab to adopt some of Uber's "better" features (ie, removal of the "See Destination" option for certain drivers), and ensuring Grab's pricing behaviour shall not be unreasonably different pre- and post-transaction.
Nonetheless, the PCC has shown that it will not hesitate to exercise its power to prohibit a proposed transaction, if it determines that the same may lead to a monopoly and potential harm for stakeholders in the relevant market. This was exhibited the PCC's decision to prohibit the Proposed Acquisition by Universal Robina Corporation (URC) of the sugar milling assets of Central Azucarera de Don Pedro (CADPI), when after investigation, it found that the transaction will result in a monopoly in the sugar milling services in four provinces in Southern Luzon.
Evaluation of efficiency defence
The PCC's decision in the URC-CADPI transaction also shed light on how the PCC will evaluate claims of efficiencies. In this case, CADPI argued that the acquisition will result in economies of scale, and the resulting consolidation of milling operations in the region will benefit the industry in terms of bringing back the close co-ordination and partnership between the millers and the planters.
The PCC determined that CADPI was not able to substantiate its efficiency claims through detailed and verifiable evidence, including how the potential efficiency will outweigh the potential competition concerns identified by the PCC. CADPI and RHI also did not present evidence that the efficiencies claimed could not be achieved without the transaction.
Based on this, parties to a proposed transaction that wish to avail of efficiency defences must be ready to present detailed and verifiable evidence, and to demonstrate that the potential benefits:
Mergers in specific industries
Under the PCA, the PCC has original and primary jurisdiction to enforce all competition-related issues in all industries, although sector regulators maintain general supervision and regulation over these industries. While the endorsement or opinion of sector regulators may be considered in the PCC's assessment of the competitive effects of a particular transaction, the decision to clear or prohibit the transaction lies with the PCC.
Since 2016, the PCC has reviewed various transactions across various industries such as manufacturing, real estate, energy and gas, retail and e-commerce, healthcare, finance and insurance. The PCC's decision in these transactions shed light on the issues that it considers relevant in reviewing potential competition constraints which may be unique to the markets in a particular industry.
In addition to reviewing notified transactions, the PCC is proactive in advocating regulatory reforms to address competition concerns that may be facilitated by existing regulations in various industries. To date, the PCC has issued position papers and policy notes on the construction, rice and rice importation, air transport, domestic shipping, land transport, and pharmaceutical industries.
PCC's response to the COVID-19 pandemic
The PCC remains vigilant in policing mergers and acquisitions during the COVID-19 pandemic. Although the PCC temporarily suspended merger processes during the enhanced community quarantine periods, the MAO has resumed operations since 18 May 2020 and as of writing of this article accepts online submissions of merger notifications an requests for confirmation of non-coverage.
The PCC's Chairman Arsenio Balisacan has expressed in a meeting of the Management Association of the Philippines that the PCC is mindful that the crisis that is brought about by the pandemic may lead to increased concentration in markets as companies either close or consolidate. Larger companies may see the pandemic as an opportunity to eliminate start-ups which would have otherwise challenged their dominance in the market. Companies are reminded that while "likely exit" or "failing firm" defences are recognised exemptions to prohibited mergers under the PCA, the law has standards in place, and the PCC will be extra vigilant in analysing transactions to avoid possible adverse consequences in the market.
As the Philippines transitions to the "new normal", and the economy slowly recovers from the effects of the pandemic, the PCC is expected to continue to be vigilant in enforcing the PCA to keep market abuses in check, and ensure that competition remains robust and healthy. In this regard, the PCC may be expected to adopt a more meticulous approach in the evaluation of mergers and acquisitions, particularly in industries that were impacted by the crisis, in order to curtail consolidations which seek to take advantage of the market, and to ensure protection and promotion of consumer choice and welfare.