Firm favors M&A threshold of P10B, but antitrust watchdog warns against it

A local holding company has expressed support to a proposal that would raise the notification threshold for mergers and acquisitions or M&As to P10 billion.

But the country’s antitrust watchdog said such filter could leave some anti-competitive transactions overlooked only because they cost less.

In a Senate hearing for Senate Bill 1711 on Monday, Adel Tamano, vice president for corporate affairs of Udenna Corp., said they are in favor of Senator Miguel Zubiri’s proposal to increase the notification threshold from the P1 billion-mark currently legislated under the Philippine Competition Act (PCA).

Under the law, companies doing M&As which cost of transaction would exceed P1 billion would have to notify the Philippine Competition Commission (PCC), which would then have to study the deal to see if it has any anti-competitive elements.

“We support the P10 billion threshold that is provided in the bill [that Senator Miguel Zubiri] filed,” Tamano said.

Tamano cited the presentation made by PCC during the hearing, which noted that 46 M&A transactions were approved in 2017. According to him, the number of approved transactions provides the “rationale” to support the proposed increase in the notification threshold to P10 billion.

“Let’s say the average amount of that, if I understood the presentation correctly, was something below P9 billion, that means if it’s below 10 billion, most likely the market is not affected by the transaction,” Tamano said.

Zubiri echoed Tamano’s observation.

Zubiri noted the whole procedure of required notifications might be unnecessary since all of the 46 M&As in 2017 were approved anyway.

Earlier in the hearing, the legislator said that he represents “big businessmen who may be affected by one way or another with this law [PCA].”

Udenna’s support to Senate Bill 1711, which also seeks to make the term of PCC commissioners co-terminus with the term of the country’s president, came few weeks after the PCC fined and declared void the holding company’s acquisition of a Dutch firm that made it partial owner of 2GO Group Inc., the country’s biggest integrated supply chain operator.

Udenna is led by Davao-based businessman Dennis Uy, a known ally of President Rodrigo Duterte.

The PCC decision said Udenna did not notify PCC regarding the deal even if it passed the P1 billion notification threshold.

Problematic deals would be overlooked

However, PCC officials pointed out that if the P10 billion notification threshold was used in 2017, it would mean some potentially anti-competitive transactions would have been overlooked at the expense of the over-all market and its consumers.

Citing their experience last year, PCC officials had said that deals pegged between P2 billion to P8 billion were more likely to have anti-competitive elements.

PCC Commissioner Johannes Bernabe noted there were four transactions in 2017 that were flagged for anti-competitive concerns. All these would have had consequences to the market if it did not undergo PCC’s review.

“In those four transactions, there were concrete anti-competitive concerns which could have led to a possible prohibition of those transactions. [I would just like to clarify that] the review process of mergers and acquisitions is quite useful,” Bernabe said during the hearing.

“Those four transactions could have consequences not just on how it would change the market but also the consumers. That’s why we are very careful in handling those transactions,” he added.

Also in the same hearing, Senator Bam Aquino informed Zubiri that his proposal to raise the notification threshold could already be done under the PCA, and therefore, might not require a separate legislation.

Moreover, PCC officials said the commissioners’ term cannot be co-terminus with the president since they need to be independent from the incumbent administration.

But while the law actually allows PCC to update the notification threshold on their own, the commissioners saw more reasons not to raise it all the way to P10 billion.

Threshold higher than the world’s largest economy

Among the reasons is that the proposed P10 billion-mark would put the Philippines – a third world country – at a higher threshold than that of the United States – the world’s largest economy, according to Bernabe.

PCC had previously noted that any parties doing an M&A must satisfy two tests before being required to notify the competition watchdog: the size of person test and the size of transaction test.

Under PCC’s new rules, the size of person test means that at least one of the companies in the deal must be worth more than P5 billion. The size of transaction test, on the other hand, means that the aggregate value of the assets of the acquired company must exceed the P2 billion-level.

These values were previously pegged at P1 billion, but PCC recently updated it to reflect the country’s economic growth and overall inflation. The PCC would annually adjust the values starting this 2018.

“[In the US,] we’re looking at P4.2 billion and P8.5 billion for size of transaction and size of party test, [respectively]. How much is the size of our economy? And yet you’re gonna raise it beyond what the US is imposing as threshold?” Bernabe emphasized.