On 21 February 2019, the Philippine Competition Commission (PCC) issued Resolution No. 03-2019 (CR 3-19) increasing the thresholds for mandatory notification of M&A transactions (i) from PhP5 billion to PhP5.6 billion for the size of person test, and (ii) from PhP2 billion to PhP2.2 billion for the size of transaction test.
The new thresholds took effect on 1 March 2019, and applies to M&A transactions whose definitive agreements1 are executed after such date.
Implications for Business in the Philippines
M&A transactions whose definitive agreements2 are executed after the effective date of CR 3-19 on 1 March 2019 will be subject to mandatory notification to the PCC if they meet the new thresholds of PhP5.6 billion for the size of person test, and PhP2.2 billion for the size of transaction test.
M&A transactions that meet the thresholds for mandatory notification must file a notification with the PCC within 30 days from the date of signing of the definitive agreement, and must not be consummated prior to obtaining the clearance from the PCC or the lapse of the waiting period as provided under the Rules and Regulations of the Philippine Competition Act (PCA) (PCA-IRR) and the Rules on Merger Procedure (Merger Rules).
What the regulation says
Under Memorandum Circular No. 18-001 (MC 18-01), the rationale for providing mandatory notification thresholds is to ensure that M&A transactions that are more likely to substantially lessen competition in the market are subject to the PCC’s review, and to exclude those that are less likely to pose competition concerns. In line with this, the PCC recognized the need to regularly adjust the thresholds for notification to reflect inflation and economic growth. This will also help ensure the efficient use of the PCC’s limited resources.
The new thresholds in CR 3-19 were set by the PCC pursuant to Section 3 of MC 18-01, which states that the thresholds shall be automatically adjusted commencing on 1 March 2019 and every year thereafter, using as index the Philippine Statistics Authority’s (PSA) official estimate of the nominal Gross Domestic Product growth of the previous calendar year rounded up to the nearest hundred millions. The new threshold amounts were based on the PSA’s data as of January 2019. It estimated that the nominal GDP grew by 10.23% from 2017 to 2018.
Under the PCA-IRR, parties to an M&A must notify the PCC if the transaction meets both the size of person test and the size of transaction test.
Size of person test
In light of CR 3-19, the size of person test is 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 PhP5.6 Billion.
Size of transaction test
CR 3-19 has adjusted the threshold for the size of transaction, as provided below, according to the type of the M&A transaction.
For an acquisition of assets, mandatory notification is required if (a) the value of the assets being acquired in the Philippines or the value of the acquiring entity’s assets in the Philippines, depending on where the assets to be acquired are located, and (b) the gross revenues generated by those assets in or into the Philippines, exceed PhP2.2 billion.
For acquisition of shares in a corporation, or of an interest in a non-corporate entity, mandatory notification is required if (a) the value of the assets of the target or its gross revenues in, into or from the Philippines, exceed PhP2.2 billion, and (b) the acquisition will give the acquirer and its affiliates more than 35% of the target’s outstanding voting shares or profits, or more than 50% of such voting shares or profits, if the acquirer already has more than 35% interest in the target, prior to the transaction.
In case of a joint venture, the acquirer is subject to mandatory notification if the total value of assets to be combined and contributed to the joint venture in the Philippines, or the gross revenues in the Philippines from such assets, exceeds PhP2.2 billion.
The revised thresholds shall not apply to M&A transactions that are currently pending review by the PCC.
Actions to consider
Parties to an M&A that will not meet the increased thresholds under CR 03-19 will no longer be required to notify the PCC of their transaction, if the definitive agreements for such transaction will be executed after 1 March 2019. On the other hand, M&A transactions whose definitive agreements are signed prior to 1 March 2019 must continue to use the current PhP5 billion and PhP2 billion threshold under the PCA-IRR in assessing whether they need to notify the PCC.
Parties should also continue to monitor the automatic adjustment of the notification thresholds to take effect on every March 1st of every succeeding year.
 Under PCC Clarificatory Note no. 16-01 a ‘definitive agreement’ sets out the complete and final terms and conditions of a merger or acquisition, including the rights and obligations between or among the transacting parties. These would include share purchase agreements, asset purchase agreements, joint venture agreements and other similar agreements.