Are M&As at risk under new competition law?
In my July 9, 2015 column, I pointed out that one of the features of the recently enacted Philippine Competition Act (PCA) is the inclusion in it of merger control provisions.
The new law prohibits mergers or acquisitions that substantially prevent, restrict or lessen competition. To help ensure there is no violation of this prohibition, the law requires that where the merger or acquisition involves a transaction value of more than P1 billion, notification should be made to the Philippine Competition Commission (PCC).
The PCA gives the PCC a maximum period of 90 days to review the proposed merger or acquisition. Unless the PCC acts earlier, the parties cannot consummate the transaction during this period. However, if the PCC does not decide for whatever reason within this period, the merger or acquisition shall be deemed approved and the parties may proceed to implement it.
Failure to comply with the notification requirement will make the transaction void. It will also subject the parties to an administrative fine amounting to as much as 5 percent of the transaction value.
The PCA provides that it “shall take effect 15 days following its publication in the Official Gazette or at least two (2) national newspapers of general circulation.”
The law was published in the Official Gazette on July 21, 2015. Hence, it became effective on Aug. 5, 2015.
The new law also provides that the PCC “shall be organized within 60 days after the effectivity of this Act.” This was supposed to have happened not later than Oct. 4, 2015.
However, despite the lapse of about 150 days from the effectivity of the PCA, the PCC has not yet been constituted.
The big question is: what happens to mergers and acquisitions that have taken or will take place after the effectivity of the new law but before the organization of the PCC.
The question has been raised time and again, principally by foreign businessmen who want to invest in our country either by way of acquisition or merger with local companies. Needless to stress, billions of pesos are involved in these investments.
Obviously, the parties cannot comply with the notification requirement mandated by the new law for the simple reason that the PCC has not yet been organized.
Would this mean the merger or acquisition is void as expressly stated by the PCA? Will the parties be subjected to the administrative fine provided for by the new law?
There are several possible answers but it would be more prudent to request the professional opinion of lawyers with expertise on the PCA. Certainly, a more thorough and well-studied legal evaluation is required considering the potential risk involved to the merger or acquisition. The transaction stands the risk of being declared void, not to mention the hefty administrative fine (as much as 5 percent of the transaction value) that may be assessed on the parties to the merger or acquisition.
There is a multitude of other questions that are begging for answers under the new law. We will discuss them in a separate column. In the meantime, the present state of things poses unnecessary risk for mergers and acquisitions that are happening or are being planned.
Significantly, pursuant to the no-touch provision of the PCA, only mergers and acquisitions that have received a favorable ruling from the PCC may not be challenged under this Act, unless, of course, the ruling was obtained through fraud or materially false information.
Better still then, aside from immediately organizing the PCC as mandated by the PCA, I fervently hope that President Aquino requires it to come up with the law’s implementing rules and regulations at the earliest possible time.
That will help ensure certainty and stability in business transactions as the country takes its rightful place in world business in 2016.
(The author is a senior partner of Accralaw and a professor in the Ateneo Law School. The views in this column are exclusively his and may not be attributed to the institutions he is associated with. He may be contacted through [email protected])
