The Philippine Competition Commission (PCC) has declared void businessman Dennis Uy’s acquisition of a Dutch company that made him partial owner of the country’s biggest integrated supply chain operator, 2GO Group Inc.
In a decision released Monday, the antitrust body declared void holding firm Udenna Corp.’s $120-million acquisition of the shares of KGL Investment Cooperatief U.A. (KGLI Coop) in KGL Investment B.V. (KGLI-BV) on a technicality.
Prior to the transaction, KGLI-BV owned 39.71 percent of KGLI-NM Holdings, Inc. (KGLI-NM), a Philippine company which partly owns Negros Navigation Co. Inc. (Nenaco). Nenaco, for its part, owns 88.31 percent of 2GO Group.
The Competition law requires that the PCC must be notified when a transaction is worth more than P1 billion. In this case, PCC said the parties involved have not sent a notification of the deal, which was consummated nearly two years ago.
Apart from rendering the deal void, the PCC fined Udenna and KGLI Coop P19.6 million, which was equivalent to one percent of their merger transaction.
“The law is clear: An agreement consummated in violation of the competition law’s compulsory notification requirement shall be fined and is considered void,” read the decision.
The decision, however, was not unanimous. PCC Chair Arsenio Balisacan and Commissioners Johannes Bernabe and Amabelle Asuncion voted to make the deal void while also imposing a fine.
Commissioner Stella Quimbo, on the other hand, said the parties involved must only be fined. In her dissenting opinion, she said current circumstances “call for restraint on the part of the commission in applying the void penalty.”
The decision marks the end of an investigation that lasted more than a year, prompted by a letter in December 2016 from Negros Holdings and Management Corp. This is also the first non-notification case that PCC had decided on.
Under current procedures, any parties doing a merger and acquisition must satisfy two tests before being required to notify the competition watchdog. These are the size of the person test and the size of the transaction test.
The size of the person test means that at least one of the companies in the deal must be worth more than P1 billion. The size of the transaction test means that the aggregate value of the assets of the acquired company exceed the P1 billion threshold.
PCC said the parties involved even admitted that Udenna qualified for the size of person test. The question, however, was whether or not they were also qualified under the size of the transaction test.
The parties said they qualified only under the size of person test, but not the other. However, the investigation of the PCC office found the transaction met the threshold of both tests, and therefore required notification.
With respect to remedies, the PCC said the parties could still file the proper notification and go through the merger review process.
In a statement, Udenna said the decision was “unduly harsh and uncalled for.”
“Udenna acted in good faith in consummating the transaction based on its interpretation of the newly issued rules of the PCC, which in Udenna’s opinion are ambiguous. At the time of completion of the subject transaction, the PCC Rules were new, and Udenna had no guidelines, interpretative rulings or precedents to rely on,” said Adel Tamano, Udenna vice president for corporate affairs.