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Recent Developments
On 17 February 2020, the Philippine Competition Commission (PCC) published PCC Commission Resolution No. 02-2020 dated 11 February 2020 (CR No. 02-2020) on its website, which adjusts the mandatory notification thresholds under the Philippine Competition Act (PCA) and PCA Implementing Rules and Regulations (PCA-IRR), as follows:
- Size of Party will be increased from PHP 5.6 Billion to PhP 6 Billion
- Size of Transaction will be increased from PhP 2.2 Billion to PhP 2.4 Billion.
The adjusted thresholds in CR No. 02-2020 will take effect on 1 March 2020, and shall apply to M&A transactions whose definitive agreements are signed or executed thereafter.
Implications for Business in the Philippines
M&A transactions whose definitive agreements are executed on or after 1 March 2020 will be subject to mandatory notification to the PCC if they meet the new thresholds of PhP 6 billion for the Size of Party test, and PhP 2.4 billion for the Size of Transaction test.
The Size of Party test will be met if (i) the aggregate annual gross revenues in, into or from the Philippines, or (ii) the value of the assets in the Philippines of the ultimate parent entity (UPE) of either the acquiring or acquired entities exceeds PhP 6 billion.
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(ii)
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Size of Transaction test
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The size of transaction will be met if the transaction value, as determined below, exceeds PhP 2.4 billion.
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TRANSACTION
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SIZE OF TRANSACTION
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GROSS ANNUAL REVENUES
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AGGREGATE VALUE OF ASSETS
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OTHER CRITERIA
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1
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merger or acquisition of assets in the Philippines
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Gross annual revenues generated in the Philippines by assets acquired in the Philippines exceeds PHP 2.4 billion
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OR
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Aggregate value of assets in the Philippines being acquired exceeds PHP 2.4 billion
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None
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2
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merger or acquisition of assets outside the Philippines
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Gross annual revenues generated in or into the Philippines by assets acquired outside the Philippines exceed PHP 2.4 billion
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AND
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Aggregate value of assets owned by the acquiring entity in the Philippines exceeds PHP 2.4 billion
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None
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3
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merger or acquisition of assets inside and outside the Philippines
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Gross annual revenues generated in or into the Philippines by the assets acquired in and outside the Philippines exceed PHP 2.4 billion
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AND
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Aggregate value of assets owned by the acquiring entity in the Philippines exceeds PHP 2.4 billion
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None
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4
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acquisition of voting shares of a corporation
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Gross annual revenues generated from sales in, into, or from the Philippines of the acquired corporation and by entities it controls, other than assets that are shares of any of those corporations, exceed PHP 2.4 billion
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OR
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Aggregate value of assets owned by the acquired entity and entities it controls, other than assets that are shares of any of those corporations, exceeds PHP 2.4 billion.
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Acquiring entity, together with their affiliates, would own voting shares of the corporation that, in the aggregate carry more than the following percentages of the votes attached to all the corporation’s outstanding voting shares:
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(i)
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Thirty-five percent (35%), or
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(ii)
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Fifty percent (50%), if the entity or entities already own more than 35%, as the case may be, before the proposed acquisition.
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5
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acquisition of interest in a non-corporate entity
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Gross annual revenues generated from sales in, into, or from the Philippines of the acquired non-corporate entity and by entities it controls, exceed PHP 2.4 billion
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OR
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Aggregate value of assets owned by the acquired entity and entities it controls, exceeds PHP 2.4 billion
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Acquiring entity, together with their affiliates, would hold an aggregate interest that entitles it to receive the following percentages in profit or assets of the non-corporate entity upon dissolution:
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(i)
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Thirty-five percent (35%), or
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(ii)
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Fifty percent (50%), if the entity or entities already own more than 35%, as the case may be, before the proposed acquisition;
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6
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Formation of a joint venture
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Gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed Php 2.4 billion
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OR
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Aggregate value of assets to be combined in the Philippines or contributed into the proposed joint venture exceeds Php 2.4 billion
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As a result of the transaction, the joint venture partners will be exercising joint control over the target.
Joint control exists when an entity has the ability to determine strategic commercial decisions of the joint venture (positive joint control), or to veto such strategic commercial decisions (negative control). Forms of joint control may be seen in the equality of voting rights or appointment to management and decision-making bodies, veto rights on strategic commercial decisions, joint exercise of voting rights, or similar analogous circumstances. It is not determined solely by equity ownership or participation in profits.
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To determine whether the thresholds are met, the parties may use the values as stated on the (i) most recent audited financial statements, or (ii) if the entity is not required to prepare audited financial statements, the last regularly prepared annual statement of income and expense; provided that such statements have been prepared in accordance with the generally or internationally accepted accounting principles adopted by the entity.
The revised thresholds under CR No. 02-2020 shall not apply to M&A transactions that are pending review by the PCC by 1 March 2020.
Actions to consider
Parties to a proposed M&A transaction which would meet the current thresholds of PhP 5.6 billion (for Size of Party) and PhP 2.2 billion (for Size of Transaction), but may not meet the increased thresholds of PhP 6 Billion (for Size of Party) and PhP 2.4 Billion under CR 02-2020 may consider deferring the execution of their definitive agreements until after 1 March 2020. On the other hand, those whose definitive agreements have already been signed prior to 1 March 2020 must continue to use the current PhP 5.6 billion and PhP 2.2 billion thresholds in assessing whether their transaction will be subject to notification to the PCC.
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