Merger Control Comparative Guide

• Published date: 31 August 2021
• Subject Matter: Anti-trust/Competition Law, Antitrust, EU Competition , Trade Regulation & Practices
• Law Firm: MVGS Law
• Author: Ms Tephanie Gandia and Elmer B. Serrano

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions govern merger control in your jurisdiction?

The Philippine Competition Act (10667/2015) (PCA) is the primary statute governing competition and merger control in the Philippines, together with the Implementing Rules and Regulations of Republic Act 10667 (PCA-IRR) and other rules and regulations issued by the Philippine Competition Commission (PCC).

The PCA took full effect in 2017 after a two-year transitional period.

1.2 Do any special regimes apply in specific sectors (eg, national security, essential public services)?

No. The pre-notification merger control regime under the PCA and the PCA-IRR applies to covered transactions regardless of sector. However, the PCC has signed partnership agreements with certain government agencies that oversee regulated sectors (eg, banking, insurance and electric power), with the objective of working together towards a harmonised and efficient regulatory approach to the relevant sector.

1.3 Which body is responsible for enforcing the merger control regime? What powers does it have?

The PCC, created by virtue of the PCA, is the independent quasi-judicial body that is tasked with implementing the national competition policy.

The PCC has original and primary jurisdiction over the enforcement and implementation of the PCA. It has the power, among other things, to:

• review proposed mergers and acquisitions;
• set the thresholds for notification;
• specify the requirements and procedures for notification; and
• upon exercising its powers to review, prohibit mergers and acquisitions that will substantially prevent, restrict or lessen competition in the relevant market.

The PCC also has the power to conduct inquiries and investigate, hear and decide on cases involving any violation of the PCA and other competition laws.

2 Definitions and scope of application

2.1 What types of transactions are subject to the merger control regime?

Mergers and acquisitions may be subject to review by the Philippine Competition Commission (PCC).

The PCC Rules on Merger Procedure define an 'acquisition' as the purchase or transfer of securities or assets, by contract or other means, for the purpose of obtaining control by:

• one entity of the whole or part of another entity;
• two or more entities over another entity; or
• one or more entities over one or more other entities.

A 'merger', on the other hand, refers to the joining of two or more entities in an existing entity or to form a new entity. This includes joint ventures, whether incorporated or not.

2.2 How is 'control' defined in the applicable laws and regulations?

The Implementing Rules and Regulations of Republic Act 10667 (PCA-IRR) define 'control' as "the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise".

The Philippine Competition Act (PCA) and the PCA-IRR provide that control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one-half of the voting power of an entity, unless in exceptional circumstances it can clearly be demonstrated that such ownership does not constitute control.

Control also exists even when an entity owns one-half or less of the voting power of another entity if:

• there is power over more than one-half of the voting rights by virtue of an agreement with investors;
• there is power to direct or govern the financial and operating policies of the entity under a statute or agreement;
• there is power to appoint or remove the majority of the members of the board of directors or equivalent governing body;
• there is power to cast the majority votes at meetings of the board of directors or equivalent governing body;
• there exists ownership over, or the right to use all or a significant part of, the assets of the entity; or
• there exist rights or contracts which confer decisive influence on the decisions of the entity.

2.3 Is the acquisition of minority interests covered by the merger control regime, and if so, in what circumstances?

Generally, no - unless the resulting interest exceeds 35% and the transaction meets both the 'size of party' and the 'size of transaction' tests of the PCC.

2.4 Are joint ventures covered by the merger control regime, and if so, in what circumstances?

Yes, provided that they meet the notification threshold of the PCC - that is, the 'size of party' and the 'size of transaction' tests. For joint ventures, these are as follows:

• Size of party: The aggregate annual gross revenues in, into or from the Philippines, or the value of the assets in the Philippines of the ultimate parent entity (UPE) of at least one of the acquiring or acquired entities, including those of all entities that the UPE controls, directly or indirectly, exceeds PHP 6 billion. In the formation of a joint venture (other than in connection with a merger or consolidation), the contributing entities shall be deemed acquiring entities and the joint venture shall be deemed the acquired entity.
• Size of transaction: The value of the transaction exceeds PHP 2.4 billion. Rule 4, Section 3(d) of the PCA-IRR provides that a joint venture is notifiable if either
• • the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture exceeds PHP 2.4 billion; or
  • The 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.
• In determining the assets of the joint venture, the following are included:
• • all assets which any entity contributing to the formation of the joint venture has agreed to transfer, or for which agreements have been secured for the joint venture to obtain at any time, whether or not such entity is subject to the requirements of the PCA; and
  • any credit or other obligations of the joint venture which any entity contributing to its formation has agreed to extend or guarantee, at any time.

  2.5 Are foreign-to-foreign transactions covered by the merger control regime, and if so, in what circumstances?

  A transaction is notifiable if it meets both the size of party and the size of transaction thresholds set by the PCC (see question 2.6). Under the PCC Guidelines on the Computation of Merger Notification Thresholds, sales with a Philippine nexus will be included in calculating the value of the gross revenues for the purposes of these tests.

  The guidelines provide as follows:

  • "The determination on whether the gross revenues from sales are considered to be 'in', 'into' and 'from' the Philippines depends on the location where competition with alternative suppliers occur";
  • "Usually, the said sales take place where the characteristic or representative action under the contract in question is to be performed or executed"; and
  • "Online transactions for the sale of goods have a Philippine nexus if the goods are to be delivered within the Philippines or the contract of sale is perfected in the Philippines but delivery will take place outside the Philippines."

  In cases where the size of party and size of transaction thresholds are exceeded by a transaction with a Philippine nexus, the deal will be considered notifiable notwithstanding the fact that it is a foreign-to-foreign transaction.

  2.6 What are the jurisdictional thresholds that trigger the obligation to notify? How are these thresholds calculated?

  In order to determine whether a transaction should be notified to the PCC, one should refer to the thresholds under Rule 4 of the PCA-IRR and the latest PCC Memorandum Circular on notification thresholds, considering that the PCA grants the PCC the power to set the thresholds for notification. The PCC provides as follows in relation to the size of party and the size of transaction thresholds:

  • The size of party threshold pertains to the computation of the aggregate value of the assets in the Philippines, and revenues from sales in, into or from the Philippines, of the filing UPE, including all entities that it controls, directly or indirectly.
  • The size of transaction threshold pertains to the computation of the value of the assets being acquired or/and the gross revenues generated by the assets being acquired, or of the acquired entity and entities it controls, depending on the type of transaction, as provided under Rule 4, Section 3(b) and (d), as amended. With the passage of Republic Act 11494 - otherwise known as the 'Bayanihan to Recover as One Act' (BARO) - which took effect on 15 September 2021, mergers and acquisitions entered into within two years of the date on which BARO took effect with a transaction value below PHP 50 billion) will be exempt from compulsory notification.

  Rule 4, Section 3 of the PCA-IRR provides that the parties to a merger or acquisition must provide when the transaction meets both the size of party and size of transaction thresholds, as follows.

  The size of party is met where the aggregate annual gross revenues in, into or from the Philippines, or the value of the assets in the Philippines, of the UPE of at least one of the acquiring or acquired entities, including all entities controlled by the UPE, directly or indirectly, exceeds PHP 6 billion.

  The size of transaction threshold is met where the value of the transaction exceeds PHP 2.4 billion and any of the following criteria are satisfied:

  • with respect to a proposed merger or acquisition of assets in the Philippines, either
  • • the aggregate value of the assets being acquired in the proposed transaction exceeds PHP 2.4 billion; or
    • the gross revenues generated in the Philippines by assets acquired in the Philippines exceed PHP 2.4 billion;
  • with respect to a proposed merger or acquisition of assets outside the Philippines
  • • the aggregate value of the assets in the Philippines of the acquiring entity exceeds PHP 2.4 billion; and
    • the gross revenues generated in the Philippines by those...