Part of the regulatory framework governing mergers and acquisitions in the Philippines is the review, when specific thresholds are met, by the Philippine Competition Commission (“Commission”), pursuant to Republic Act No. 10667, also known as the “Philippine Competition Act“. The details are provided in the Implementing Rules and Regulations (IRR).

DEFINITIONS

A merger refers to the joining of two or more entities into an existing entity or to form a new entity. On the other hand, an acquisition refers to the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by: (a) One entity of the whole or part of another; (b) Two or more entities over another; or (c) One or more entities over one or more entities.

An entity refers to any person, natural or juridical, sole proprietorship, partnership, combination or association in any form, whether incorporated or not, domestic or foreign, including those owned or controlled by the government, engaged directly or indirectly in any economic activity.

REVIEW OF MERGERS AND ACQUISITIONS

The Commission, motu proprio or upon notification, shall have the power to review mergers and acquisitions having a direct, substantial and reasonably foreseeable effect on trade, industry, or commerce in the Philippines, based on factors deemed relevant by the Commission. In conducting this review, the Commission shall: 

• (1) Assess whether a proposed merger or acquisition is likely to substantially prevent, restrict, or lessen competition in the relevant market or in the market for goods and services as may be determined by the Commission; and 

• (2) Take into account any substantiated efficiencies put forward by the parties to the proposed merger or acquisition, which are likely to arise from the transaction.

In evaluating the competitive effects of a merger or acquisition, the Commission shall endeavor to compare the competitive conditions that would likely result from the merger or acquisition with the conditions that would likely have prevailed without the merger or acquisition. 

In its evaluation, the Commission may consider, on a case-to-case basis, the broad range of possible factual contexts and the specific competitive effects that may arise in different transactions, such as: 

• (1)  the structure of the relevant markets concerned; 
• (2)  the market position of the entities concerned; 
• (3) the actual or potential competition from entities within or outside of the relevant market; 
• (4) the alternatives available to suppliers and users, and their access to supplies or markets; 
• (5) any legal or other barriers to entry. 

Market refers to the group of goods or services that are sufficiently interchangeable or substitutable and the object of competition, and the geographic area where said goods or services are offered. [See also Determination of Relevant Market.]

NOTIFYING ENTITIES

Parties to a merger or acquisition that satisfy the thresholds (see below) are required to notify the Commission before the execution of the definitive agreements relating to the transaction.

If notice to the Commission is required for a merger or acquisition, then all acquiring and acquired pre-acquisition ultimate parent entities or any entity authorized by the ultimate parent entity to file notification on its behalf must each submit a Notification Form (the “Form”) and comply with the required procedure (see “procedure for notification and review”, below). The parties shall not consummate the transaction before the expiration of the relevant periods provided in the IRR.

In the formation of a joint venture (other than in connection with a merger or consolidation), the contributing entities shall be deemed acquiring entities, and the joint venture shall be deemed the acquired entity. A “joint venture” refers to a business arrangement whereby an entity or group of entities contribute capital, services, assets, or a combination of any or all 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 in connection therewith, with the intention to share both profits and risks and losses subject to agreement by the entities.

THRESHOLDS FOR COMPULSORY NOTIFICATIONS

The determination of the requirement for notification depends on: (a) the size of party/person, which pertains to the 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; and (b) the size of transaction, which refers to the value of the transaction.

An “ultimate parent entity” is the juridical entity that, directly or indirectly, controls a party to the transaction, and is not controlled by any other entity.

Parties to a merger or acquisition are required to provide notification when: (a) the size of transaction exceeds 2.4 Billion Pesos; AND (b) the size of person exceeds 6 Billion Pesos. The revised thresholds apply to M&As with definitive agreements executed on or after 1 March 2020. The thresholds started at One Billion Pesos, as originally provided in the IRR.

The value of the transaction is a combination of the: (a) value of the assets being acquired; and (b) revenue generated by those assets. The applicable rule depends on the location of the assets, whether inside or outside the Philippines. 

• When assets are in the Philippines if either: (i) the aggregate value of the assets in the Philippines being acquired exceeds 2.4 Billion Pesos; OR (ii) the gross revenues generated in the Philippines by assets acquired in the Philippines exceed 2.4 Billion Pesos.
  
• When assets are outside the Philippines, if: (i) the aggregate value of the assets in the Philippines of the acquiring entity exceeds 2.4 Billion Pesos; AND (ii) the gross revenues generated in or into the Philippines by those assets acquired outside the Philippines exceed 2.4 Billion Pesos.
  
• When assets are inside and outside the Philippines, if: (i) the aggregate value of the assets in the Philippines of the acquiring entity exceeds 2.4 Billion Pesos; AND (ii) the aggregate gross revenues generated in or into the Philippines by assets acquired in the Philippines and any assets acquired outside the Philippines collectively exceed 2.4 Billion Pesos.

When the proposed acquisition is for voting shares of a corporation or of an interest in a non-corporate entity, the determination of the value of the transaction depends on the: (a) value of the assets or gross revenues; AND (b) entitlement to a particular percentage of votes or profits.

• (i) If the aggregate value of the assets in the Philippines that are owned by the corporation/non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed 2.4 Billion Pesos; OR (ii) The gross revenues from sales in, into, or from the Philippines of the corporation/non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed 2.4 Billion Pesos; 

AND

• (i) For acquisition of the voting shares of a corporation, if the entity or entities acquiring the shares, together with their affiliates, would own voting shares of the corporation that, in the aggregate, carry more than 35% of the votes (or 50%, if the entity or entities already own more than 35% before the proposed acquisition) attached to all the corporation’s outstanding voting shares; OR (ii) For acquisition of an interest in a non-corporate entity, if the entity or entities acquiring the interest, together with their affiliates, would hold an aggregate interest in the non-corporate entity that entitles the entity or entities to receive more than 35%of the profits (or 50%, if the entity or entities already own more than 35% before the proposed acquisition) of the non-corporate entity or assets of that non-corporate entity on its dissolution.

Where an entity has already exceeded the 35% threshold for an acquisition of voting shares, or the 35% threshold for an acquisition of an interest in a non-corporate entity, another notification will be required if the same entity will exceed 50% threshold after making a further acquisition of either voting shares or an interest in a non-corporate entity. 

In a notifiable joint venture transaction, an acquiring entity shall be subject to the notification requirements if either (i) the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture exceeds One Billion Pesos, or (ii) the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed One Billion Pesos. In determining the assets of the joint venture, the following shall be included: 

• All assets which any entity contributing to the formation of the joint venture has agreed to transfer, or for which agreements have been secured for the joint venture to obtain at any time, whether or not such entity is subject to the requirements of the act; and
  
• Any amount of credit or any obligations of the joint venture which any entity contributing to the formation has agreed to extend or guarantee, at any time. 

A merger or acquisition consisting of successive transactions, or acquisition of parts of one or more entities, which shall take place within a one-year period between the same parties, or any entity they control or are controlled by or are under common control with another entity or entities, shall be treated as one transaction. If a binding preliminary agreement provides for such successive transactions or acquisition of parts, 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 under this Section. 

For purposes of calculating notification thresholds: 

• (1) The aggregate value of assets in the Philippines shall be as stated on the last regularly prepared balance sheet or the most recent audited financial statements in which those assets are accounted for. 

• (2) The gross revenues from sales of an entity shall be the amount stated on the last regularly prepared annual statement of income and expense of that entity.

A transaction that meets the thresholds and does not comply with the notification requirements and waiting periods (see Procedure for Notification and Review, below) shall be considered void and will subject the parties to an administrative fine of 1% to 5% of the value of the transaction. 

In the case of a merger or acquisition of banks, banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions, and other special corporations governed by special laws, a favorable or no-objection ruling by the Commission shall not be construed as dispensing with the requirement for a favorable recommendation by the appropriate government agency under Section 79 of the Corporation Code of the Philippines. [Note: See Section 78 of the Revised Corporation Code.] 

A favorable recommendation by a governmental agency with a competition mandate shall give rise to a disputable presumption that the proposed merger or acquisition is not violative of the Act or its IRR, provided that the recommendation must arise directly from the exercise of the agency’s mandate to determine any anti-competitive effect of the proposed merger or acquisition.

CONSULTATIONS PROCEEDING THE SUBMISSION OF NOTIFICATION

Prior to filing a notification, parties to a proposed merger or acquisition that are required to notify may inform the Commission of their proposed merger or acquisition and request a pre-notification consultation with the staff of the Commission.

To request a meeting, the parties must provide the following information in writing: 

• (1) the names and business contact information of the entities concerned; 

• (2) the type of transaction; and 

• (3) the markets covered or lines of businesses by the proposed merger or acquisition. 

During such pre-notification consultations, the parties may seek non- binding advice on the specific information that is required to be in the notification.

PROCEDURE FOR NOTIFICATION AND REVIEW

A. Each party to a merger or acquisition required to give notification to the Commission shall submit the Notification Form and pay such applicable fees as may be determined by the Commission. An electronic copy of the Form and a scanned copy of the certification, contained in a secure electronic storage device, shall likewise be submitted to the Commission, simultaneous with the filing of the aforementioned hard copy. 

B. The Form must be signed by a general partner of a partnership, an officer or director of a corporation, or in the case of a natural person, the natural person or his/her legal representative, and certified that the contents of the Form are true and accurate of their own personal knowledge and/or based on authentic records. In all cases, the certifying individual must possess actual authority to make the certification on behalf of the entity filing the notification.

C. The parties may notify, on the basis of a binding preliminary agreement in any form, such as a memorandum of agreement, term sheet, or letter of intent. Each of the acquired and acquiring entities must submit an affidavit with their Forms, attesting to the fact that a binding preliminary agreement has been executed and that each party has an intention of completing the proposed transaction in good faith. 

D. Both the certification and the affidavit must be notarized or otherwise authenticated.

E. Except as described below, the waiting period begins after all notifying entities have filed their respective Forms, together with the corresponding certifications and affidavits, and have been notified by the Commission that the Forms are complete. In voting securities acquisitions, such as tender offers, third party and open market transactions, in which the acquiring entity proposes to buy voting securities from shareholders of the acquired entity, rather than from the entity itself: 

• i. the acquiring entity is required to serve notice on the issuer of those shares to ensure the acquired entity is aware of its reporting obligation;
  
• ii. only the acquiring entity must submit an affidavit. The acquiring entity must state in the affidavit that it has an intention of completing the proposed transaction in good faith, and that it has served notice on the acquired entity as to its potential reporting obligations (and in tender offers, the acquiring entity also must affirm that the intention to make the tender offer has been publicly announced); and 

• iii. the waiting period begins after the acquiring entity files a complete Form. 

F. Upon submission of the Form, the Commission shall determine within 15 days whether the Form and other relevant requirements have been completed in accordance with applicable rules or guidelines, and shall inform the parties of other information and/or documents it may have failed to supply, or issue a notice to the parties that the notification is sufficient for purposes of commencing Phase I review of the merger or acquisition. 

G. The waiting period under this Section shall commence only upon the Commission’s determination that the notification has been completed in accordance with applicable rules and guidelines. 

H. Within 30 days from commencing Phase I review, the Commission shall, if necessary, inform the parties of the need for a more comprehensive and detailed analysis of the merger or acquisition under a Phase II review, and request other information and/or documents that are relevant to its review. 

I. The issuance of the request under the immediately preceding paragraph 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; Provided, that, in no case shall the total period for review by the Commission of the subject agreement exceed 90 days from the time the initial notification by the parties is deemed complete as provided under paragraph (f) of this Section; Provided further, that should the parties fail to provide the requested information within 15 days from receipt of the said request, the notification shall be deemed expired and the parties must refile their notification. Alternatively, should the parties wish to submit the requested information beyond the 15 day period, the parties may request for an extension of time within which to comply with the request for additional information, in which case, the period for review shall be correspondingly extended. 

J. Parties to a proposed transaction under review shall inform the Commission of any substantial modifications to the transaction. On the basis of the information provided, the Commission shall determine if a new notification is required. 

K. Where notification of a transaction is not required, then the periods provided above for the Commission to conclude its review shall not apply . 

L. The Commission, in its discretion, may terminate a waiting period prior to its expiration. 

M. When either waiting period set out ends on a Saturday, Sunday or holiday, the waiting period is extended until the next business day. 

N. When the above 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 consummate it. 

O. All notices, documents, and information provided to or emanating from the Commission under the consultation and notification procedures shall be subject to the confidentiality rule, except for the purpose of enforcing the Act or its IRR, or when the release of information contained therein is with the consent of the notifying entity or is mandatorily required to be disclosed by law or by a valid order of a court of competent jurisdiction, or of a government or regulatory agency, including an exchange.

EFFECT OF NOTIFICATION

If within the relevant periods stipulated in the preceding section, the Commission determines that the transaction is a prohibited merger or acquisition, and does not qualify for exemption as discussed above, the Commission may: 

• (a) Prohibit the implementation of the agreement;

• (b) Prohibit the implementation of the agreement unless and until it is modified by changes specified by the Commission; or

• (c) Prohibit the implementation of the agreement unless and until the pertinent party or parties enter into legally enforceable agreements specified by the Commission.

PUBLICATION OF NOTIFICATION SUMMARY

(a) When additional information or documents requested by the Commission for the purpose of a Phase II review of a notified merger or acquisition has been submitted by the parties, the Commission shall publish on its website the following information related to the notification on the basis of the Form submitted by the parties: 

• (1) the name of the involved entities;
  
• (2) the type of the transaction;
  
• (3) the markets covered or lines of businesses by the proposed merger or acquisition; and
  
• (4) the date when the complete notification was received.

(b) When publishing this information, the Commission shall take into account the legitimate interest of the entities regarding the protection of their trade secrets and other confidential information.

MODIFICATION TO THRESHOLDS ON COMPULSORY NOTIFICATION

The Commission shall publish, from time to time, regulations adopting, modifying, rescinding or otherwise changing: 

• (a) The transaction value threshold and such other criteria subject to compulsory notification; 

• (b) The information that must be supplied for notified mergers or acquisitions; 

• (c) Exceptions or exemptions from the notification requirement; and 

• (d) Other rules relating to the notification procedures.

PROHIBITED MERGERS AND ACQUISITIONS

Merger or acquisition agreements that substantially prevent, restrict, or lessen competition in the Philippines in the relevant market or in the market for goods or services, as may be determined by the Commission, shall be prohibited. 

EXEMPTIONS FROM PROHIBITED MERGERS AND ACQUISITIONS

Prohibited mergers or acquisitions, as noted above, may, nonetheless, be exempt from prohibition by the Commission when the parties establish either of the following: 

• (a) The concentration has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that result or are likely to result from the merger or acquisition agreement; or 

• (b) A party to the merger or acquisition agreement is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement among the known alternative uses for the failing entity’s assets. 

Provided, that an entity shall not be prohibited from continuing to own and hold the stock or other share capital or assets of another corporation, which it acquired prior to the approval of the Act, or from acquiring or maintaining its market share in a relevant market through such means without violating the provisions of the Act and its IRR.

Provided, further, that the acquisition of the stock or other share capital of one or more corporations solely for investment and not used for voting or exercising control and not to otherwise bring about, or attempt to bring about the prevention, restriction or lessening of competition in the relevant market shall not be prohibited. 

BURDEN OF PROOF

The burden of proof on exemptions from prohibited mergers and acquisitions lies with the parties seeking the exemption. 

A party seeking to rely on the exemption based on the ground that concentration has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that result or likely to result from the merger or acquisition agreement, must demonstrate that if the agreement were not implemented, significant efficiency gains would not be realized. 

FINALITY OF RULINGS

Merger or acquisition agreements that have received a favorable ruling from the Commission, except when such ruling was obtained on the basis of fraud or false material information, may not be challenged under the Act or its IRR. 

TREATMENT OF CONFIDENTIAL INFORMATION

(a) Information, including documents, shall not be communicated or made accessible by the Commission, insofar as it contains trade secrets or other confidential information, the disclosure of which is not considered necessary by the Commission for the purpose of the review. 

(b) Any entity or party that supplies information, including documents, to the Commission, shall clearly identify any material that it considers to be confidential, provide a justification for the request of confidential treatment of the information supplied and the time period within which confidentiality is requested, and provide a separate non-confidential version by the date set by the Commission.

(c) The Commission may require the parties to the merger or acquisition and other interested parties to identify any part of a decision or case summary adopted by the Commission, if any, which in their view contains trade secrets or other confidential information. Where trade secrets or other confidential information are identified, the parties to the merger or acquisition and other interested parties shall provide a justification for the request of confidential treatment and provide a separate non-confidential version by the date set by the Commission. Whenever the Commission deems that the justification for confidential treatment provided by the party is insufficient or not grounded, it shall inform the interested party of its decision to make the information accessible.

(d) If a merger or acquisition is under review in multiple jurisdictions, parties to the transaction may waive the confidentiality protections contained in this Rule, so as to allow the Commission to exchange otherwise protected information with competition authorities in other countries.