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When bigger is not always better: Regulating

business combinations
SUITS THE C-SUITE By Allenierey Allan V. Exclamador
Business World (07/27/2015 p.S1/4)
In a highly competitive business environment, companies may consider combining
business as an avenue for growth.
In the banking sector, for instance, regulators encourage smaller banks to consider
combining to stay afl oat as banking systems in the region integrate in response to the
implementation of the Association of Southeast Asian Nations Economic Community.
However, business combinations should not restrain trade and prevent market
competition. Consumers must be allowed to exercise their right of choice over goods and
services off ered in the market. It is in this light that the Philippine Congress passed the
Philippine Competition Act, which President Benigno S. C. Aquino III signed into law
last Tuesday.
Republic Act (RA) 10667 provides for a national competition policy prohibiting anticompetitive agreements, abuse of dominant position, and anti-competitive mergers and
acquisitions. The law also provides for the establishment of the Philippine Competition
The law shall apply against any person or entity engaged in trade, industry and
commerce in the Philippines. It shall also apply to international trade having direct,
substantial, and reasonably foreseeable eff ects in trade, commerce and industry in the
Philippines, including acts done outside the Philippines.
The PCC is an independent quasi-judicial body with powers to implement the Philippine
Competition Act. The PCC shall be an agency attached to the Offi ce of the President and
shall have the following powers and functions, among others:
Conduct inquiries and investigate any violations of the Act;
Hear and decide cases involving any violation of the Act and other existing competition
laws and institute the appropriate civil or criminal proceedings;
Review proposed mergers and acquisitions and prohibit those that will substantially
prevent, restrict or lessen market competition;
Stop or redress anti-competitive agreements or abuse of dominant position by applying
remedies such as, but not limited to, issuance of injunctions, requirement of divestment,
and disgorgement of excess profi ts;
Conduct administrative proceedings, impose sanctions, fi nes or penalties for any noncompliance of the Act and its implementing rules and regulations and punish for

Issue subpoenas to require the production of books, records, or other documents or

data relevant to the investigation and personal appearances before the PCC; summon
witnesses; administer oaths; and issue interim orders such as show cause orders and
cease and desist orders;
Upon court order, undertake inspections of business premises and other offi ces, land
and vehicles, where relevant books, tax records, or other documents relevant to the
investigation are kept, in order to prevent the removal, concealment, tampering with or
destruction of the books, records, or other documents;
Issue adjustment or divestiture orders including orders for corporate reorganization or
divestment in the manner prescribed by the rules and regulations implementing the Act;
Intervene or participate in administrative and regulatory proceedings requiring
consideration of the provisions of the Act initiated by government agencies such as the
Securities and Exchange Commission, Energy Regulatory Commission and the National
Telecommunications Commission.
The Offi ce for Competition under the Department of Justice shall only conduct
preliminary investigations and undertake prosecution of all criminal off enses under the
Act and other competition related laws.
RA 10667 prohibits the following:
Entering into anti-competitive agreements which include those restricting competition;
fi xing price; setting, limiting, or controlling production, markets, technical development,
or investment; dividing or sharing the market; and other similar agreements.
Abuse of dominant position by engaging in conduct that would substantially prevent,
restrict or lessen competition such as, selling goods or services below cost; imposing
barriers to entry; making a transaction subject to acceptance by the other parties of
other obligations which have no connection with the transaction; discriminatory pricing;
imposing restrictions on the lease or contract for sale of goods, or services concerning
where, to whom, or in what forms goods or services may be sold or traded such as fi xing
prices, giving preferential discounts or imposing conditions not to deal with competing
entities; making the supply of particular goods or services dependent upon the purchase
of other goods or services from the supplier which have no direct connection with the
main goods or services to be supplied; imposing unfairly low purchase prices for goods
and services of marginalized service providers and producers; and other similar
circumstances. There is a rebuttable presumption of market dominant position if the
market share of an entity in the relevant market is at least 50%.
Entering into mergers or acquisition agreements that substantially prevent, restrict or
lessen competition in the relevant market or in the market for goods or services. Merger
refers to the joining of two or more entities into an existing entity or to form a new

entity. Acquisition refers to the purchase of securities or assets, for the purposes of
obtaining control by: (1) one entity of the whole or part of another; (2) two or more
entities over another; or (3) one or more entities over one or more entities. When the
value of the transaction exceeds P1 billion, parties to a merger or acquisition agreement
are required to notify the PCC which shall have the power to review the agreement. If
the PCC determines that the agreement substantially prevents, restricts or lessens
competition and does not qualify for exemption, the PCC may prohibit the
implementation of the agreement unless modifi ed by changes specifi ed by PCC or the
party or parties enter into a legally enforceable agreement. The PCC shall adopt
regulations stipulating thresholds subject to notifi cation; information that must be
supplied for notifi ed mergers or acquisitions; exceptions or exemptions from the
notifi cation requirement, and other rules relating to the notifi cation procedures.
In administrative proceedings, entities found to have committed prohibited acts under
the Act will be fi ned P100 million for the fi rst off ense and up to P250 million for the
second off ense. Non-compliance with an order of the PCC may be fi ned at least P50,000
up to P2 million for each violation and a similar penalty for each day beginning 45 days
from receipt of the decision, order or ruling from the PCC.
Supplying incorrect or misleading information to the PCC may likewise be imposed fi nes
of up to P1 million.
Entities found guilty of entering into any anti-competitive agreement may be punished
for each and every violation, with imprisonment from two to seven years and a fi ne
ranging from P50 million to P250 million. For juridical persons, the penalty of
imprisonment shall be imposed on the responsible offi cers, directors, or employees
holding managerial positions.
The fi ne shall be tripled if the violation involves the trade or movement of basic
necessities and prime commodities such as rice; corn; bread; fresh, dried and canned
fi sh and other marine products, fresh pork, beef and poultry meal; fresh eggs; fresh and
processed milk or fresh vegetables or similar commodities.
The Act also gives the PCC the power to develop a Leniency Program to be granted to
any entity in the form of immunity from suit or reduction of any fi ne which would
otherwise be imposed on a participant in an anti-competitive agreement in exchange for
the voluntary disclosure of information regarding such agreements and under certain
The passage of the Philippine Competition Act by Congress is envisioned to enhance
market competition by eliminating monopolies, cartels and other unfair business
practices that lead to high prices of goods and services. However, while its purpose is
laudable, commercial arrangements including proposed mergers and acquisitions may
now be subject to closer scrutiny under the Act. Aside from considering the business
purpose of mergers and acquisitions such as lowering costs and increasing long term
profi tability, parties to such proposed commercial arrangements should also consider

the provisions of the newly enacted law. Mergers and acquisitions may now have to
undergo additional procedural and substantive compliance requirements before they are
given the go signal by regulatory authorities.
Allenierey Allan V. Exclamador is a Tax Partner of SGV & Co.