On 19 February 2018 the Philippine Competition Commission (PCC) issued a decision fining Udenna Corporation, a Philippine holding company, and KGL Investment Cooperatief U.A. (KGLI Coop), domiciled in the Netherlands, for failing to notify Udenna’s acquisition of KGLI Coop’s wholly-owned subsidiary, KGL Investment B.V. (KGLI-BV). The PCC press release accompanying the decision notes that the Mergers and Acquisitions Office of the PCC commenced its investigation in December 2016, after receiving a third party complaint. The PCC has fined Udenna and KGLI Coop PHP 19.6 million (approximately €300,000), equivalent to 1 per cent of the value of the transaction, and declared the transaction to be void.
The parties sought to argue that notification was not required on the basis that the value of KGLI-BV’s existing minority (39.71 per cent) shareholding in a separate Philippine company should be excluded from the jurisdictional test. The PCC rejected this argument, and found that the law only excludes the value of shares held by the acquired company in entities that it controls, to avoid double-counting. The value of the acquired company’s shares in entities it does not control must be included to reflect the actual value of the acquired company’s assets.
The PCC panel unanimously agreed that the fine should be equivalent to 1 per cent of the value of the transaction, the lowest in the statutory range of penalty, taking account of the parties’ active cooperation during the investigation. However, one Commissioner dissented in relation to the decision to void the transaction, noting that it seemed unduly harsh.
The decision remains subject to appeal. Alternatively, the parties could comply with the decision by notifying the transaction to the PCC. Pending any successful challenge to the decision, this case sets an important precedent in the Philippines that any mergers completed in breach of the notification requirement are likely to be declared void. The majority of the Commissioners found that entirely voiding the acquisition was the best way to ensure the intended deterrent effect of the country’s gun-jumping laws. One pertinent question is whether the PCC will take a similar approach with respect to foreign-toforeign mergers, and whether this would be proportionate and reasonable in the circumstances of the case. At the same time, there are welcome signs that the PCC may adjust the PHP 1 billion notification threshold so that fewer transactions are caught, after its chairperson noted last week that a draft proposal for the adjustment of the threshold is expected to be published by the PCC in the first half of 2018.