Resolving risks for MAs under new competition law

Recently, the Philippine Competition Commission (PCC) issued two memorandum circulars (Nos. 16-001 and 16-002) to temporarily implement the Philippine Competition Act (PCA).

The two circulars were published in a national broadsheet on Feb. 22, 2016 and will take effect on March 8, 2016.

The new law, which became effective on Aug. 8, 2015, prohibits mergers or acquisitions that substantially prevent, restrict or lessen competition. To help the PCC determine whether an MA violates the PCA, the law requires parties to a merger or acquisition involving a transaction value of more than P1 billion to notify the PCC before consummating it. Failure to comply with this makes the transaction void and subjects the parties concerned to an administrative fine of 1 percent to 5 percent of the transaction value.

Under the PCA, the PCC should have been organized within 60 days from its effectivity, or up Oct. 7, 2015. However, it was only on Feb. 1, 2016 that the President organized it. The rules and regulations implementing the PCA (PCA IRR) should have been promulgated within 180 days from Aug. 8, 2015, or up to Feb. 4, 2016. Due to the delayed organization of the PCC, the PCA IRR has yet to be issued.

MAs that have taken place after the effectivity of the PCC but before the organization of the PCC and the promulgation of the PCA IRR were at risk. This is what the circulars attempt to address.

Pre-circulars MAs

Under Circular 16-001, M&As that were executed or implemented between the effectivity of the PCA on Aug. 8, 2015 and the effectivity of the circular are exempt from the notification requirement. They are “deemed approved” and cannot be challenged at all for being anti-competitive. They enjoy absolute immunity under the circular.

Under Circular 16-002, the forgoing rules also apply where the corporations involved or at least one of them is a listed company.

Pre-PCA IRR MAs

MAs that occur after the effectivity of the circulars but before that of the PCA IRR require notification. Due to the lack of the PCA IRR, the two circulars require very skeletal information for the notification requirement. They do not even require information on the market share that is projected to result from the MA, much less the market share of the acquiring or target entity. The information is limited to the parties to the merger or acquisition; name and contact details of the authorized representatives of each of the parties to the merger or acquisition to whom the Commission may address any correspondence; brief description of the businesses of the parties to the transaction; type of transaction (whether a merger or an acquisition); consideration; key terms of the transaction, and timing for the execution or implementation of the transaction.

If the transaction involves a listed firm and is required to be disclosed to the Philippine Stock Exchange (PSE), Circular 16-002 requires the parties to notify the PCC prior to the execution of the transaction, otherwise before the close of business of the first working day after that in which the covered transaction occurred.

Circular No. 16-002 provides that the PSE shall regularly provide the PCC with a list of covered transactions on the first working day after that in which the covered transactions occur.

The circulars expressly provide that these MAs “shall be deemed approved.” But unlike MAs that take place before the effectivity of the circulars, these MAs enjoy only conditional immunity. They can be challenged if the notice submitted to the PCC contains materially false information.
Observations

Some ideologues have questioned the legality of the circulars. They pointed out that no matter how anti-competitive a pre-PCA IRR merger or acquisition is, it is “deemed approved” and cannot be challenged under the expressed terms of the circulars.

They may have a point but the circulars are a practical resolution of legal doubts arising from the delayed organization of the PCC and enactment of the PCA IRR.

Let’s give the PCC a chance.

(The author is a senior partner in the ACCRA Law Offices and a law professor in the Ateneo de Manila University. The views in this column are exclusively his and may not be attributed to the institutions he is connected. He may be contacted at [email protected])