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- Merger Screening
1. What type of transactions are caught by the merger control regime?
1.1.1 Type of transactions that are caught by the merger control rules?
Mergers whereby two or more entities join into an existing entity or to form a new entity.
Acquisitions of shares or assets are caught by the merger control rules if the transaction through contract or other means brings a change of control by:
- one entity of the whole or part of another;
- two or more entities over another; or
- one or more entities over one or more entities.
In addition, acquisitions of shares are caught only if as a result of the proposed transaction, the acquirer obtains ownership of at least 35% or 50%, as the case may be, of the voting shares or voting rights in target.
Joint ventures are caught by the merger control rules. See Section 1.2.1 below.
1.2 Joint ventures
1.2.1 What types of joint ventures are caught by the merger control rules?
Joint ventures whereby an entity or group of entities contribute capital, services, assets, or a combination of any or all of the foregoing, to undertake an investment activity or a specific project, where each entity shall have the right to direct and govern the policies in connection therewith, with the intention to share both profits and risks and losses subject to agreement by the entities.
2. Establishing jurisdiction for notification of mergers
2.1 Merging parties/undertakings concerned
2.1.1 Which undertakings are considered parties to the merger ("undertakings concerned") in the various types of transactions identified under Section 1.1.1 and 1.2.1.
For the general size of the parties test: In mergers and acquisitions the undertakings concerned are the ultimate parent entity of at least one of the acquiring or acquired entities (target), including that of all entities that the ultimate parent entity controls, directly or indirectly.
The Philippine Competition Act does not classify mergers according to type but provides for general definitions was set out above.
The Philippine Competition Commission gives the following interpretation of the Competition Act:
(i) Merger by absorption – The controlling entity post-transaction shall be the “acquirer”; the entity to be absorbed is the “target”.
(ii) Merger by creation of a new entity – Same as above, the controlling entity shall be the “acquirer”. If the merging firms shall have equal or joint control over the new entity, all/both transacting parties shall be the “acquirer”; the new entity (or joint venture) becomes the “target
In joint ventures: The contributing undertakings are considered acquirers, and the joint venture is considered the target.
The transaction value test: The undertakings concerned, where there is a target, are the target and entities it controls.
2.3 General thresholds
To accelerate the recovery of the Philippine economy from the downturn caused by the COVID-19 pandemic, the Philippines has enacted new legislation called the Bayanihan to Recover as One Act (“Bayanihan 2”) or Republic Act 11491.
The Bayanihan 2 effectively exempts from compulsory notification transactions with values below PHP 50,000,000,000 if entered into within 2 years from the effectivity of Bayanihan 2, i.e. 15 September 2020.
Additionally, it suspends the Philippine Competition Commission’s exercise of motu proprio review of these transactions for 1 year.
Please note that the above exemption thresholds apply to transactions entered into during the effectivity of Bayanihan 2, i.e. 15 September 2020. Transactions entered into before the effectivity of Bayanihan 2 are still subject to mandatory merger filing if the undertakings concerned exceeded the normal jurisdictional thresholds when the definitive agreement was entered into.
Hence, for transactions under contracts entered into before 15 September 2020, the normal jurisdictional thresholds still apply. For such transactions, merger filing is needed if the general size of the parties test is met and one of the following transaction value thresholds is met:
The general size of the parties test:
- Either the acquirer or the target has a turnover or assets exceeding PHP 6,000,000,000 in the Philippines.
The transaction value test:
The transaction value exceeds PHP 2,400,000,000. The transaction value is measured as follows below:
For mergers and acquisition of assets inside the Philippines:
- The value of the assets acquired or the turnover generated by the assets acquired exceeds PHP 2,400,000,000 in the Philippines.
For mergers and acquisition of assets outside, or partly in- and outside, the Philippines:
- The value of the acquirer’s assets exceeds PHP 2,400,000,000 in the Philippines, and the turnover generated by the assets acquired exceeds PHP 2,400,000,000 in the Philippines.
For acquisition of shares:
- The value of the target’s assets or the target’s turnover exceeds PHP 2,400,000,000 in the Philippines.
For joint ventures:
- The rules on mergers apply equally to joint ventures. The contributing undertakings are considered acquirers, and the joint venture is considered the target.
For information regarding which entity is the “seller” and the “target”, respectively, in (i) mergers by absorption, (ii) mergers by creation of a new entity and (iii) joint ventures, please see Section 2.1.1 above.
2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)
2.5 Foreign-to-foreign mergers
2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?
Foreign-to-foreign mergers are also fileable in the Philippines if they meet the thresholds.
3. Calculation and allocation of turnover, asset value, transaction value etc.
3.1 Relevant turnover
3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?
Relevant turnover is sales revenue generated in or sold into the Philippines.
3.2 Relevant period for calculation of turnover
3.2.1 Which financial year(s) is relevant for the calculation of turnover?
The turnover relevant for the thresholds is that stated in the last regularly prepared annual income statement.
3.3 Relevant undertakings for the calculation of turnover
3.3.1 The undertakings whose turnover is taken into account?
In the size of the parties test, the undertakings whose turnover is taken into account are the ultimate parent entities of the acquiring and the target entities, including that of the ultimate parent companies’ subsidiaries.
In the transaction value test, the following applies:
- Mergers and acquisitions of asset: The turnover of the asset acquired is taken into account.
- Acquisition of shares: The turnover of the target, including entities it controls, is taken into account.
3.3.2 Shall the turnover of the existing seller be included in the target's group turnover?
The seller’s turnover is taken into account in the size of the parties test.
The seller’s turnover is not taken into account in the transaction value test.
3.6 Calculation of other thresholds
3.6.1 The principles for calculation of metrics for other thresholds (e.g. transaction value, market share, share of supply etc.)?
The asset value relevant for the thresholds is that stated in the last regularly prepared balance sheet or the most recent audited financial statements in which those assets are accounted for.
In the size of the parties test, the undertakings whose assets are taken into account are the ultimate parent entities of the acquiring and the target entities, including that of the ultimate parent companies’ subsidiaries.
In the transaction value test, the following applies:
- Mergers and acquisitions of asset: The assets acquired are taken into account.
- Acquisition of shares: The assets of the target, including its subsidiaries, are taken into account.
and last updated 17-12-2020 by
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