TITLE 1X MERGER AND CONSOLIDATION SEC. 75. Plan of Merger or Consolida . ition. — Two (2) Orie ea bas wonsmay merge ntoasingle corporation which s| all be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following: (a) The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent corporations; (b) The terms of the merger or consolidation and the mode of carrying the same into effect; nt of the changes, if any, in the tion of the surviving corporation d, in case of consolidation, all d to be set forth in the articles porations organized under this (c) A stateme! articles of incorpora' in case of merger; an’ the statements require of incorporation for cor Code; and Ih respect to the Such other provisions wit propeeea merger or consolidation as are deemed necessary or desirable. Members’ Approval. — . 76. stockholders’ or Uoeciresal bya majority vote of each of the board 693 Scanned with CamScannerOMMES yISED U~ TpPINES ct THE ROH ip PHILIPPL ' constituent corporations rusteeS ol lidation, the same shajj of directors © "merger or lar ation ockholders. oy of the plan ore appro’ orations at Separate submitted corp ra bers 0 ed for the purpose. Notice meporate meetings 41") ten to all stockholders or ive corporations in the same cial meetings f i f regular or spe 9 manner as giving notes ode. Anne notice eRaIIsistie under Serre meeting and include a copy or a Summary 7 . ofthe plan of merger Or consolidation. mative vote of stockholders representing at lon anthirds (23) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of nonstock corporations shall be necessary for the approval of such plan. Any dissenting stockholder may exercise the right of appraisal in accordance with this Code: Provided, That if after the approval by the stockholders of such plan, the board of directors decides to abandon the plan, the right of i I be extinguished. ate eo ene 2 > Outs} thirds (213) of the nn" Capital stock or of two Corporations. Such bees of each of the constituent shall be considere = * ogether with an nt Consolidation, 88 the agreement i ie or of merge Articles required pPProval by re Mlerger or or artic Preceding gcKhold of Consolidaticy Section, 8 Consolidation. - ‘rs or members 45 articles of merger rath executed by each oF assistant secrete Sident ne to be signed Ei the "Y Of each contiied by the secreta'Y ‘Scanned with CariScannerTITLE x — TLE IX — MERGER AND CONSOLIDATION 695 (a) The plan consolidation; of the merger or the plan of mene to Stock Corporations, the number of shares out 'Ng, or in the case of Nnonstock corporations, the number of members; {o) As toeach Corporation, the number of shares or members voting for or against such plan, respectively; (d) The carrying amounts and fair values of the assets and liabilities of the respective companies as of the agreed cut-off date; (e) The method to be used in the merger or consolidation of accounts of the companies; (f) The provisional or pro-forma values, as merged or consolidated, using the accounting method; and (g) Such other information as may be prescribed by the Commission. | SEC. 78. Effectivity of Merger or Consolidation. — The articles of merger or of consolidation, signed and certified as required by this Code, shall be submitted to the Commission for its approval: Provided, That in the case of merger or consolidation of banks or banking institutions, loan associations, trust companies, insurance companies, public. utilities, educational institutions, and other special corporations governed by special laws, the favorable recommendation of the appropriate government agency shall first be obtained. If the Commission is satisfied that the merger or consolidation of the corporations concerned is consistent with the provisions of this Code and existing laws, it shall issue a certificate approving the articles and plan of merger or of consolidation, at which time the Merger or consolidation shall be effective. If, upon investigation, the Commission has reason i to believe that the proposed merger or consolidation is i baie Scanned with CamScannerID JUR SE CODE. -_e coyteNTARIES, CopppoRATION CO be mee snHE PHILIPPIN! visions consistent wit! ine Ei ‘o si this contrary to oF in faa nail set 3 ring 10 ve i: Core exist corned the opporti We of near. corporations er cor dato, ‘ime, an pi . ea Welt von F eacl constituent corporation at least shall be oe pefore said hearing. The Commission to oreatter proceed as provided in 7 er or Consolidation. ~ The er SEC, 79. Effects of Merger Oe cnowing effects: merger or consolidation shall have constituent corporations shall become a Ee ees which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation; (b) The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation; (c) The surviving or the consolidated corporation shall possess all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code; shal eee ee the consolidated corporation franchises of : we rights, privileges, immunities and pFporsonal each constituent corporation; and all real nal Property, all receivables due on whatever account, including sul choses in action, and ener tons t0 shares and other fo, or due to each polis other interest of, belonging deemed transferre constituent corporation, shall be consolidated cornu, °. 294 Vested in such surviving of and "poration without further act or deed ict or a (e) The survivin, be responsible f; at each conetien 2 the lables woorBoration shat 101 or col Orporath les and obligations of llablities ae Corporation tel ugh such surviving Sations; and any maalt Incurred such Ing claim, action Scanned with CamScanner ‘ TpeonsoliaTITLE IX — MERGER AND CONSOLIDATION 607 or proceeding brought by or against any constituent corporation may be prosecuted by or agflitat the surviving or consolidated Corporation. The rights of creditors or llens upon the property of such constituent corporations shall not be impaired by the merger or consolidation, NOTES 1, Concept of Merger and Consolidation. Merger is one where a corporation absorbs another corporation, where the former corporation remains in existence while the latter is dissolved. Consolidation is one where a new corporation is created, and the consolidating corporations are extinguished. a, Consolidation signifies a union that necessarily results in the creation of a new corporation and the termination of the constituent ones, whereas a merger signifies the absorption of one corporation by another which retains its name and corporate identity with the added capital, franchises and powers of a merged corporation.? b. Merger or consolidation does not become effective by mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing the same. In this jurisdiction, for avalid merger or consolidation, the approval of the SEC is required.? Section 78 of the RCCP provides that the merger or consolidation shall be effective upon the issuance by the SEC of a certificate of merger or consolidation. c. However, it was also opined by the SEC that Section 78 of the RCCP does not prevent the parties from agreeing on the effective date of the merger. In other words, the parties may stipulate the effective date of merger.’ 116 Fletcher 6; See also Bank of Commerce v. Radio Philippines Network, Inc., *tal., G.R, No, 195616, April 21, 2014. 7 : drada Electric, G.R, No. 142936, April 17, ?Philippis tional Bank v. An 2002; Meine Nation Loan Asso., Inc. v. Willcom, G.R. No. 178618, Octobor 4, 2010. ®SEC-OGC Opinion No. 19-08 dated March 13, 2019. Scanned with CamScanner1D JURIST CODE couaneNTARlls SirepORATION COPE 638 THE RET AE SHILIPPINES otice of the fact and g must be established }, ake judicial 0 7 n thereto. It was explain not t erger of merger. The fact and effects of “a nae person who makes allegations in one case: and conclusions of the RTC, the me “Contrary to the findings on Sean pe tae BT a gsume the merger because ‘ty sit A the petitioner and Panash® wat to thereby a! 2 presumptuous for the RTC Se toe wo or more existing corporation element of notoriety as Lat for oe a Joudly lacking. A merger is the uno) sou eet aurviving eorporation absorbs he others and continues th combined business. The merger dissolves the non-surviving Corporation, gna the surviving corporation acquires all the rights, properties anj liabilities of the dissolved corporations. Considering that the merge siainies andamental changes in the corporation, as well as in the Tae of the stockholders and the creditors, there must be an express provision of law authorizing the merger. The merger does not become effective upon the mre agreement of the constituent corporations, but upon the approval of te articles of meer by the cra and Exchange Commission issuing quired by Section 79 of the Corporation Code. Should any party in the merger be a special ‘on ave by its own charter, the Corporation Code ie corporation governed fpocalla tec HACLEN TE aes Goat cuaieiai first be obtained, ‘ppropriate government agency should d, Courts can’ “It is plain enough, a gh, therefore, th: whose existen , that there were se 4 wow este must be shown (nol assumed) before several: speci St can be desared as established. Among aca faces . such facts are the survivin, a ig corporation; thé vote of each of thi 5 the approval of thi ; e boards of directors of oie See merger by mejor ed corporations # separate meetings; the submissi of the stockholders or submaiosion of the plan of m, ers of each erger for the approv' corporate meetings di the outstanding capital inns te Pape che corporations at separs in ease of non-stock corporations ek conpatt the affirmative vote of 284 Be ney exeeuted by each of a the aul Porations, or 2/9 of the member suance of the certificate by © constituent ion of the approved arti 101 y the SEC wnt CorPorations to the SEC; # 01. Triangular M, bey n the approval of the merger”. in other jurisdictj Be "sdictions T. One f of merger is describ is the So-called a of merger that is allow? d Corp.’ ed Orp.’) creates a subsidi. follows; “a “triangular merger,” This # ary ie Be Sorporation (ycchasing corporation (? (New Co.’ and transfers “Bank of Comme, TCC V, Heing of Dele Crue. am, % canned with CamScannerTITLE IX — MERGER AND CONSOLIDATION 60g the subsidiary shares in the parent company which will be used for the share exchange that will be provided for in the merger plan. the subsidiary is sometimes referred to as ‘phantom’ corporation pecause it may exist only long enough to consummate the merger; pence, at one time, the triangular merger was sometimes called a hantom’ merger or a reverse phantom merger.”* The actual merger js not between the acquiring corporation and the acquired/target corporation but rather between the newly formed subsidiary an the target corporation.’ The acquiring corporation may resort to this type of merger if it wants to keep the business of the target/ acquired company separate from the acquiring company. This may also facilitate the future sale of the acquired company.’ 1.02 Foreign Corporation. The opinion of the SEC is to the effect that a foreign corporation can merge with a domestic corporation. The merger is allowed provided that the foreign corporation can prove that there is a similar authoring Jaw in its home jurisdiction. The surviving corporation shall be the domestic corporation and the merger is governed by the Corporation Code (now the RCCP) and special laws. Special laws include applicable nationalization laws. The statutory basis is Section 132 of the Corporation Code (now Section 149 of the RCCP).* 2. Rationale. Merger or consolidation may be resorted to for economic reasons. These include: (1) Economies of scale, meaning, a combination of two production units enlarges the production output over which the fixed cost of production is spread and thereby reducing the average fixed cost per unit of the output; (2) Economies of scope, meaning, the costs — and even management talent — are spread across a broader range of related activities; and (3) Costs are reduced through vertical integration, meaning there is a merger with a supplier or a customer.’ 8. Distinguished from Transfer of Property. A simple sale of property by one corporation to another is\not a merger or consolidation. Unless there is an evident intention, a mere purchase or acquisition of another corporation's assets or property does not constitute merger or consolidation even though it is advertised as such by the parties or there is an assumption of liability on the part of the purchasing corporation especially where the selling corporation still retains its franchise.” ee ‘Hazen and Markham, p. 629. "Ibi. "Palmieri, p. 732. *SEC-OGC Opinion No. 18-18 dated November 16, 2018, "Allen, Kraakman and Subramanian, p. 454. °Commissioner of Internal Revenue v. Bank of Commerce, G.R. No, 180529, November 13, 2013; 15 Fletcher 17-19. Scanned with CamScannerJURISPRUD Te MN AND. IN CODE conmBNTARIET CORPORATES 700 THE REV pHiE PHILIPPH ombinations. Combin,,. Nation nfederation or sale oy ‘om 4, pistinguished ee or confedé Ey 3 othe, se used to designate a2 9 corporations, DY ea © of whi us transaction between Wo orn the loss of the separate existen., ly result in stock SE execution i i « ing compan: the corporations.” i formation ofa holding ee ay, or ey, a. voting true a from one corporation to an Ina broag 8 transfer of the asset ae merger and consolidation. into a combination wit, r sense, combinations incl ntel ip can t i . artnership cannot merge or consolidate yi the corporation but a Pi Sere ed hesaaes rie i t ion. A partnership may NO eof the RCCP distinctly requires the presence of two or more corporations. However, combination is allowed in the sense that a partnership may be allowed by the SEC to transfer all its assets and liabilities to a corporation. The corporation will in turn issue its shares of stocks to the partners for the net assets that are transferred.” 5. _ Effects. The effects of merger and consolidation provided for in Section 79 of the RCCP may be summarized as follows: will not necessat” a, A partnershi (1) The constituent corporations shall become a single corporation; 2) The separate existence of the constituents shall cease, except that of the surviving corporation (in mer; ‘ ger) or the consolidated corporation (in consolidation); : (3) ‘The survivin, Possess all the rights, shall be subject to all € or the consolidated corporation shall " prvileges, immunities and powers and ‘uties and liabilities of a corporation; The surviyi Possess all Hehe ae cr the consolidated corporation shell » {rivileges, immunities and franchises each constituent and the suri; Properties g le fe to Surviving or the consolidated ela a bi oe ion; an ©) All liabiit; ivi tes of t] i Surviving or the consol dated constituents shall pertain to the oration, » Although there i ' re is di there is no winding A dissolution of th jon heir afta he absorbed corporat 8 or liquidation of their a**" Scanned with CamScannerTITLE IX — MERGER AND CONSOLIDATION mo because the surviving corporation automatically acquires all their rights, privileges and powers as well as their liabilities. Upon the effectivity date, the merged or absorbed corporation ceases to exist and its rights, privileges, properties as well as liabilities pass on to the surviving corporation, b, _In merger, the properties of the non-surviving corporation are not sold to the surviving corporation. These properties are absorbed by operation of law and these properties are automatically transferred and vested in the surviving corporation without further act or deed. Thus, for example, the applicable documentary stamp taxon sale of real property is not applicable because there is in fact, no sale." c. In merger, the receivables of the dissolved corporation are transferred to the surviving corporation. Thus, the surviving corporation has the power to file an action to recover any debt that pertains to the other corporation." d. _ Inthecase of merger of two banking corporations, although one banking corporation was dissolved, no winding up of its affairs or liquidation of its assets, privileges, powers and liabilities took place. The surviving banking corporation simply continued the combined businesses of the two banks and absorbed all the rights, privileges, assets, liabilities and obligations of the dissolved bank. These include the dissolved corporation’s obligation over the garnished deposits of a judgment debtor. The notice of garnishment duly served on the dissolved corporation binds the surviving corporation.” 6. Effect on Employees. The surviving corporation in the case of merger shall absorb the employees of the dissolved corporation; the employees of the constituent corporations shall become the employees of the new corporation in consolidation. The tenure of such employees should be treated as having started when they started with the dissolved or the constituent corporation as the case may be. Associated Bank v, Court of Appeals, G.R. No. 128793, January 29, 1998, 291 SCRA 511, 520. “Commissioner of Internal Revenue ¥. Pilipinas Shell Petroleum Corp., GR, No. 192398, September 29, 2014; Commissioner of Internal Revenue v, La Tondevia Distillers, Inc., G.R, No, 176188, July 16, 2016. “Ibid, 16Babst v. Court of Appeals, G.R. No. 99398, January 26, 2001, 350 SCRA 341, "Bank of Philippine Islands v. Carlito Lee, G.R. No. 190144, August 1, 2012, Scanned with CamScannerJSPRUDENVE IN AND JUR) E TES RATION COD! ENTAR ee CORPO: 102 CONE aE THE PHILIPPINES oe tity in a merger wo, urviving ene? 8 he im one case; the Or the corporation that Was absongt for the liabilit waity of the absorbed corporation he solidary ability a! issal.” answerable including the constructive ae t benefit of the employees of the Ab sorbyy p. Any retiremen! uted on the basis of their employ, d be at ent with the dissolved or Constituen, ir employ) By the fact of merger, a SUCCEssign case may be. ite and obligations has occurred." corporation shoul starting from the corporations as th of employment rig) ; + is not by itself a ground to dismiss 4, employees; the surviving corporation assumes all the liabilitie to the employees." However, although the surviving corporation js deemed to have absorbed all the employees and all employment contracts of the non-surviving corporation, the surviving corporation is nevertheless given the right to terminate employees for lawful ar authorized cause such as redundancy. The employees likewise have the right to retire or resign whether before or after the merger." c. Merge: 7. Outline of Procedure. The procedure for merger and consolidation prescribed under the Code may be summarized in this wise: (1) The Board of each corporation shall draw up a plan of merger or consolidation; by axe ne of merger or consolidation shall be approved to the rome ote of the Board of each of the corporations party ger or consolidation at Separate meetings: “Sumitro Philippi »pines) e. sena ii Fo ern aaa conta: lipinas Por Borvoee Os No. 97287, August 16, 199) The Philippine Geoth et) Corporation y, TE ILRC, 177 SCRA 208 (1989)- ‘ No. 100187, September 28 2016 E™Poye08 Une No, 188269, April” nk of Philippine 1, - Unocal Philippines, Ine» °° Federati Inions i rin®, Tale in the ovginal in BPL Unga CTE! Empl ynaptet Cour adepiedSeS#in in thin ona OR, No, 1gyZlQVeeS_ Union-Daveo Chl '# rule that romul, » October 19, 2011. deemed auto at the te , pe Of this worl, tat ALY absorbed pyr 2!°¥0e8 of the °& Ateust 10, 2010, the SUP were later adopted i ide Of the ge’ eUViving eon surviving corporation *e conclusion was sill ths "lution sr°Rting opingerPoration. The previous © igs same, 1 the motign con® and this dissenting ye apply PPlying Labor te for reconsideration. Howe"? * Scanned with CamScanner GR. No, 188269, April 17,20!"‘TITLE IX — MERGER AND CONSOLIDATION 708 (3) _ The plan of merger or consolidation shall be approved by 2/3 of the Outstanding Capital Stock of each constituent corporation or 2/3 of the members for non-stock corporations in separate meetings duly called for the purpose; (4) Articles of Merger or Articles of Consolidation shall be executed by each of the constituent corporations, signed by the President or Vice-President and certified by the Secretary or Assistant Secretary; (6) Fourcopies of the Articles of Merger or Consolidation (together with favorable recommendation of the pertinent government agency in certain cases) shall be submitted to the SEC for approval; (©) The SEC shall issue a certificate approving the Article and Plan of merger or consolidation if it is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the provisions of this Code and existing laws; and (7) _ IE, upon investigation, the SEC has reason to believe that the proposed merger or consolidation is contrary to or inconsistent with the provisions of the RCCP or existing laws, it shall set a hearing to give the corporations concerned the opportunity to be heard. Written notice of the date, time, and place of hearing shall be given to each constituent corporation at least two weeks before said hearing.” a. The plan of merger or consolidation may still be amended before the same is filed with the SEC. However, any amendment to the plan must be approved by the majority vote of the Board of each of the constituent corporations and ratified by the affirmative vote of 2/3 of the outstanding capital stock or 2/3 of the members of each of the constituent corporations. b. The Articles of Merger or Consolidation to be filed with the SEC shall be accompanied by a favorable recommendation of the government agency concerned if the corporations involved are banks or banking institutions, loan associations, trust companies, insurance companies, public utilities, educational institutions, and other special corporations governed by special laws, Radio Philippines Network, Inc., G.R. No, 2 ind ‘See also Bi Commerce Vv. also Bank of Comme! scpe of merger). 195615, April 21, 2014 (Enumerating the 6! Scanned with CamScannerENCE ON JURISPRUD} TARE A sonPORATION CODE OTHE PHILIPPINE: ‘ the notice of rovides that a ion T6of the ROCE P of the plan of mex tt c,_Seston Tot older eee ao giving ee for the approval 1] be given in the Se ee that there tm Mote consolidation shal aah cP, This me sree ea et : under Section 49 of 48 of a regular me eae fn neti prior 21-day notice ting). Section 76 requi he not special meetin) cting, which is the approval of oa tice must also include g yMMEN' 104 CONE RI (in case of i hare shall state the p' idation. The no! : sina eae omen, of or at leas' " of Protection. From the procedure out] i haves 2 that the RCCP provides layers of protection ; above, it is clear proval by the dir, idati i the ap) lidation. These include the 8 meres season any ae aa he right of appraisal.” With respect to the approvalot te Shareholders, the additional information in the Articles of Merger help stockholders arrive at an informed decision. These information include: (1) the carrying amounts. and fair values of the assets and liabilities of the respective companies as of the agreed cut-off date, (2) the method to be used in the merger or consolidation of accounts of the companies; and (3) the provisional or pro-forma values, as merged or consolidated, using the accounting method.* a. The law requires transparency which is important in order to show fairness in the merger. Part of fair dealing is the obvious duty of candor. One possessing superior knowledge may not mislead any stockholder by use of corporate information to which the latter is not privy.** “The concept of fairness has two basic aspects: fale ore ae fait price. The former embraces questions of when sactic i i anaes directors and the stockholders iy ad hey, the apprivale ‘ of fairness relates to the economi ee sens, ne ae the proposed merger, including all whe nected considerations relevant factors; assets, market value, earnings, future eee Prospects, an 7 the intrinsic or inherent value ofa ye ene that aff y's stock.”26 “Sections 76 and 40, ection 7, MGC HOOP. *Weinberber v, UO} delaware/eupreme-coury eile’ 487 A,2 2019), i courNORSHBF a zeta | a (1983), hetpadaw justie.come * Mid, “html (Last accessed Decemb™ Scanned with CamScannerTITLE IX — MERGER AND CONSOLIDATION 708 8. Effect of Philippine Competition Act. The passage of Republic Act No. 10667 or the Philippine Competition Act brought about new rules on mergers and acquisitions, Section 20 of the law provides that “merger or acquisition agreements that substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services as may be determined by the Commission [referring to the Philippine Competition Commission] shall be prohibited.” Although generally, the prohibition applies if the merger or consolidation is horizontal (as in the case of merger of competitors), it also applies to vertical mergers (like those involving the merger of a client and customer). “Relevant market refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market, defined as follows: (1) A relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer, by reason of the goods and/or services’ characteristics, their prices and their intended use; and (2) The relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those areas.”” 8.01.Notice and Review. The Philippine Competition Act provides for review by the Philippine Competition Commission (PCC) of mergers, consolidation, acquisitions and joint ventures either motu proprio or upon notice. The law provides for compulsory notification to the PCC by the parties to a merger that meets the thresholds [See 8,02 below] within thirty (30) days from signing of definitive agreements relating to the merger (“notified merger”). The agreement is void if the parties do not comply with the notice requirement.” a. Rationale. “The rationale for setting the threshold for notification is to ensure that mergers and acquisitions that are more likely to substantially lessen competition in the market for goods and services are subject to compulsory notification, and to exclude those that are less likely to pose competition concerns, Ensuring "Section 4(k), Republic Act No. 10667. *Section 17, Republic Act No. 10667 Scanned with CamScannerJSPRUDENCE ON g AND JUR CODE COMMENTARTET CORPORATION THE Rep PHILIPPD acquisition be eve to compy *y gers and acai aiscretion of persons or enti to retion : eee and services. 9 ts. In determining if the merge, hold imposed by law and the po ) Size of Entity Test and (2) py” 706 that certain mer notification canno within those market. 02. Concurring ae acquisition falls beyond the atl it is necessary to apply both Size of the Transaction Test. ntity Test. The aggregate annual tes he Philippines, or value of the assets j, te parent entity of at least one of th, iri i ntities, including that of all entities that the fering or ae aeaty control, directly or indirect, exceeds Fir Billion Pesos (Php5,000,000,000.00).” b. Size of Transaction Test. The value of the transaction exceeds Two Billion Pesos (Php2,000,000,000.00).** (With respect to a proposed merger or acquisition of assets in the Philippines if either: or a, Size of EB revenues in, into or from t the Philippines of the ultimat (the aggregate value of the assets in the Philippines being acquired in the proposed transaction exceeds Two Billion Pesos (Php2,000,000,000.00); or (ii) _ the gross revenues generated in the Philippines by assets acquired in the Philippines exceed Two Billion Pesos (Php2,000,000,000.00). (2) With respect to mer, i ilippil leg nbertect ‘gers outside the Philippines the @ the aggregate value of the assets in the Philippines of the acquiri quiri i ili Phiiptnsty es, evens Benerated in or into the sacquil 7 ee soe garni *PCC Decision in Cage "See, 16, Republic Act Ne 291009, 9, 10667; Pog "See. 16, PCA; PCC Mom, Cy, N Mem. Giz. No, 18.001 dated Mazel * No, 2018. 1a 001 dated March 1, 2018. scanned with CamScannerTITLE IX — MERGER AND CONSOLIDATION aor _, 8) With respect to mergers inside and outside the Philippines, the following must concur: 4), the aggregate value of the assets in the Philippines of the acquiring entity exceeds Two Billion Pesos (PhP2,000,000,000.00); and Gi) the aggregate gross revenues generated in or into the Philippines by assets acquired in the Philippines and any assets acquired outside the Philippines collectively exceed Two Billion Pesos (Php2,000,000,000.00). 8.03.PCA Provisions. Other pertinent provisions of the special law are as follows: SEC. 16. Review of Mergers and Acquisitions. — The Commission shall have the power to review mergers and acquisitions based on factors deemed relevant by the Commission. SEC. 17, Compulsory Notification. — Parties to the merger or acquisition agreement referred to in the preceding section wherein the value of the transaction exceeds one billion pesos (P1,000,000,000.00) are prohibited from consummating their agreement until thirty (30) days after providing notification to the Commission in the form and containing the information specified in the regulations issued by the Commission: Provided, That the Commission shall promulgate other criteria, such as increased market share in the relevant market in excess of minimum thresholds, that may be applied specifically to a sector, or across some or all sectors, in determining whether parties to a merger or acquisition shall notify the Commission under this Chapter. An agreement consummated in violation of this requirement to notify the Commission shall be considered void and subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction. Should the Commission deem it necessary, It may request further information that are reasonably Scanned with CamScanner1SPRUDENCE ON AND JUR) ODE MENTARY, CORPORATION G THE neve THE PHILIPPI sucha request has the effect ec sei, ich the agreement ; jod within whic! i May of extending then for an additional sixty (60) days, not be consum! day after the request for information jg beginning on the vided, That, in no case shai rties: Pro eae received by, ke efor review by the Commission of ‘the ae eaainbit exceed ninety (90) days from initia) subj notification by the parties. above periods have expired and no counts bea promulgated for whatever reason, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it. All notices, documents and information provided to or emanating from the Commission under this section shall be subject to confidentiality rule under Section 34 of this Act except when the release of information contained therein is with the consent of the notifying entity or is mandatorily required to be disclosed by law or by a valid order of a court of competent jurisdiction, or of a government or regulatory agency, including an exchange. In the case of the merger or acquisition of banks, canting institutions, building and loan associations, educational instite companies, public utilities, governed by ‘tutions and other special corporations the ect! 'aws, a favorable or no-objection ruling by the Commi as dispensing of trenc” Shall not be construed recommendation hr? reduirement for a favorable agency under Section appropriate government f 7 Philippines tnow Section TaRoceperation Code of the A favorable re ‘ agency with a compemendation ] a disputable progr Petition mance, a governmental acquisition is nota Pion tha Shall give rise Not Violative of thie \eoPesed merger oF ct, Scanned with CamScannerTITLE x — MERGER AND CONSOLIDATION m8 SEC. 18. Effect relevant periods stip Of Notification. — if within the ; ulated in the Preceding section, Hee atria determines that. such soreement for exemption ime 20 and does not qualify Commission may: ection 21 of this Chapter, the (a) Prohibit the implementation of the agreement; (b) Prohibit the implementat 7 ition of the agreement unless and until it is modified i the Comatasion. by changes specified by (c) Prohibit the implementation of the agreement unless and until the pertinent party or parties enter into legally enforceable agreements specified by the Commission. SEC. 19. Notification Threshold. - The Commission shall, from time to time, adopt and publish regulations stipulating: (a) The transaction value threshold and such other criteria subject to the notification requirement of Section 17 of this Act; (b) The information that must be supplied for notified merger or acquisition; (c) Exceptions or exemptions from the notification requirement; and (d) Other rules relating to the notification procedures. | Exemptions from Prohibited. Mergers SEC. 21. Exemtrerger oF acquisition agreement ern edu nen n 20 of this Chapter may, prohibited under Sectior Commission when the parties establish elther of the following: Scanned with CamScanner710 s AN PORATION CON™ ppNTARIESGORPORA COM ENISE PHILLPPINES tration has prought about or jg concen ins in efficiencies that are greater a imitation On ae that than the ete result from the merger quisition result or ll! agreement; or : isition agreement merger or acquisition a aes imminent financial failure, and the least anti-competitive alternative uses for the (b) at is faced with ac! esgreement represents arrangement among the known failing entity's assets: ity shall not be prohibited from continuing to own and hold the stock or other share capital or assets of another corporation which it acquired prior to the approval of this Act or acquiring or maintaining its market share in a relevant market through such means without violating the provisions of this Act: f Provided, That an enti Provided, further, That the acquisition of the stock ° other share capital of one or more corporations solely for investment and not used for votin isi ig or exercising control and not to otherwise bring about, or attempt o bring about the prevention, restriction, or lessening of competition ii prohibited, in the relevant. market shall not be SEC. 22. Burden under Section 21 ils: f Proat, ~ exemption. A Party 5 The burden of proof with the parties seeking the SEC. 23, F; eee + Finality quisitions. ~ Merger go dings on Mergers and have received er or acy except when a favorable duisition agreements that Ng fre of fraud or fal ch ruling wage 10m the Commission: 1S challenged under te aerial intoreane on the base ct, lon, may not be Scanned with CamScannerTITLE IX — MERGER AND CONSOLIDATION ™ Sec 24. Relevant Marke: B it. - For purposes of determining the relevant market, the following factors, among ot ers, affecting the substitutability among goods or services constituting such market and the geographic area delineating the boundaries of the market shall be considered: (a) _The Possibilities of substituting the goods or services in question, with others of domestic or foreign origin, considering the technological possibilities, extent to which substitutes are available to consumers and time required for such substitution; (b) The cost of distribution of the good or service, its raw materials, its supplements and substitutes from other areas and abroad, considering freight, insurance, import duties and non-tariff restrictions; the restrictions imposed by economic agents or by their associations; and the time required to supply the market from those areas; (c) The cost and probability of users or consumers seeking other markets; and (d) National, local or international restrictions which limit access by users or consumers to alternate sources of supply or the access of suppliers to alternate consumers. 9. Religious Corporations. A religious corporation may be merged with another religious corporation. This may involve a religious society and a corporation sole. However, for practical Teasons, the merged corporations must belong to the same religious denomination, sect or church.” 10. Reorganization. It should be noted that merger and consolidation are included in the different forms of corporate Teorganizations that are resorted to by corporations in weak financial conditions. Reorganization is also a term used for taxation Purposes. Thus, the different developments in a corporation that are SEC Opinion dated March 28, 1990. scanned with CamScannerIS AY ppORATION CVE ENTARIET CORPORA mz COMM REVISED PHILIPPINES reorganizati e broad concept of 8 ‘ion ae in th considered jncluded 10 follows: or consolidation; merge : (1) Statutory «jon by one corporation of the stog (2) The acquisition ©. exchange for its voting . af tion, ; Pe another corporal f its parent, if the acquiring Corporati voting stock Ot ion immediate); ol of the acquired corporatio Y after the as poration of subst; isiti gore antial The acquisition by one y all ats assets of another in exchange for the voting stock ¢ the acquiring corporation or its parent; (4) Atransfer bya corporation of all or part of its assets to another corporation if immediately after the transfer, the transferor or one or more of its shareholders or any combination thereof is in control of the corporation to which the assets are transferred; (6) Recapitalization; (6) A mere change in identity, form or place of organization however effected, including reincorporation in another State; and to ah A transfer by a corporation of all or part of its assets er corporation in a b; : similar proceeding! ankruptcy or insolvency case ot 11. Quasi-Reorganizati, : a in the sense that quasi- a procedure or principle wh, reorganization, may be allowed to undergo 4™* 12. De Fact sentotttee 0 Mer, Jurisdictions, de facto eter or aoa Onsolidation, In othe Nsoli an Ka Opinion dated July 2 se.” “SEC Opinion dated } "Guidelines for ee 18 -Reoronn Scanned with CamScannerTITLE 1x — MERGER AND CONSOLIDATION oe ree ake Jnvolving at least two Corporations which has the eecata a tane, Consolidation and which entitles the dissenting Ta two ie : 0 dea right. hus, in one case, a transaction pe ansolved, tte! Habito has the following effects: one corporation and directors take over the talinagetter’ nd ai eneontties and, as consideration for the transfer, the stockholders of the nger a mere purchase of shares of onally amounts to merger. a, In Bank of Commerce v. Radio Philippines Network, Inc.,” theSupreme Court adopted the following definition of de facto merger: “a de facto merger can be pursued by ; yy one corporation acquiring all or substantially all of the Properties of another corporation in exchange of shares of stock of the acquiring corporation. The acquiring corporation would end up with the business enterprise of the target corporation; whereas, the target corporation would end up with basically its only remaining assets being the shares of stock of the acquiring corporation.” The Supreme Court ruled that no de facto merger took place where there was merely sale with assumption of liabilities, that is, the owners of one corporation did not get in exchange for the said corporation’s assets and liabilities an equivalent value in another corporation’s stocks.%* b. In this jurisdiction, there have been cases where the transactions involved amounted to a de facto merger. In those cases, liability was imposed under the rubric of piercing the veil of corporate fiction. The said cases involve corporations that stopped their operation and all the businesses and assets were assumed by or transferred to a new or an existing corporation. Hence, the Supreme Court ruled that the “surviving” corporation is a mere continuation of the life of the corporation that stopped its operation. This situation is referred to by Dean Villanueva as a business entity transfer (as distinguished from asset-only transfer and equity transfer)” c. It is also to be noted that the same assumption of liability Was imposed by the Supreme Court when the business of another fansiev Gh ‘ 3 A.2d 25, ation, 999 Pa, 427, 149 A.2d 25 mi. Gam Alden Cros ang Vann, Pine rpc Taw, 2001 Ed., p. 616, °8Supra, : *Vitlanueva, Philippine Corporate Law, 2001 Ed. Scanned with CamScannerJURIST CODE ouentanits epoRATION CO m4 of THE RE % PHILIPPIN son was taken over by the corporat speed) organization ie roprietorship were assumed’ form of business tiog of a S016 Pivig take its place.” The 4,4 Ta, tion that was on d into a corporation. Th, 2 the corner ship 18 > ai ations of the partne, Ney remus if 0 partner Sr the obligations of the Parineny corporation wil be es cvs 4 a = If the corpora! ip, there ; proprietorship or partnership, tations ae ihatetrs te & : ea cn the SEC require F ee assumption of liabilities 10 those cases. exp) it is believed that the de facto merger rule is ng c. However, Ps ‘mption of liability when assets are transfere necessary for ica is another. ‘The question concerning assumption from corporation using the doctrine of piercing the vei] liability can be addressed 0 ng o Socpirate fiction. While the focus of the doctrine of piercing the veil of corporate fiction is protection of creditors, the more important aspect of the rules on de facto merger 18 shareholder protection, In other jurisdictions, if the sale of asset has the effect of merger, the shareholders receive protection that is similar to merger such as appraisal right.’ In this jurisdiction, it can be reasonably argued that the right of appraisal under Section 80 of the RCCP applies if there is de facto merger. If the appraisal right will not be given to the shareholder, there is substantial breach of their right as shareholder through circumvention. The appraisal right is present not only under paragraph (c) of Section 80 but also under paragraph (b) for the transfer or disposition of all i the assets of the corporation, seen er PROBLEM: @ Two corporations agreed a: Whit ota ug of the absorbed corporatio®- Pen to the absorbed corporation? Must absorbed cor; i ‘poration und i ‘i Procedures? Explain yourqmeate, dissolution and winding ? . ner Cagayan Valley fy San Teodoro Devel rae Inc, v.88, 107 Pil a oan. BSS, agents APR “Palmieri, p. 739 iting Pare 96 (1963); Laguna Trans CO» ny, a Sn Alden Corp,, 143 A.24 26 (Pa. 1959 Scanned with CamScannerc a. TITLE IX — ME C MERGER AND CONSOLIDATION |, 725 ndi: Eanalings the ebpopval of the merger by the SEC, may the receivables. gue the ileaty institute suits to collect all . abst + ‘4 ' Explain your answer, ‘orbed corporation from its customers? Reapees le against a customer to collect on the promissory note jenn y him after the date, of the merger agreement. The stone sated the defense that while the receivables as re of the merger agreement were transferred to the surviving corporation, those receivables which were created after the merger agreement remained to be owned by the absorbed ‘corporation. These receivables would be distributed to the stockholders conformably.. with the dissolution and liquidation procedures under the RCCP. Discuss the merits of this argument. / No. It is not necessary for the absorbed corporation to undertake dissolution and winding up procedure. Once the merger is approved by the SEC, the absorbed corporation is automatically dissolved and its agsets and liabilities are acquired and.assumed by the surviving corporation. " i No. The approval of the SEC is the operative act that makes the merger effective. Before approval by the SEC of the merger, the two corporations involved in the merger are still separate and distinct from each other. . not meritorious. The receivables pertain'to the ‘tion whether or not the same were incurred by the absorbed corporation before or after the merger agreement, or before or after the approval thereof by the SEC. Section 79 Sf the RCCP does not make any distinction as to the assets ord liabilities of the absorbed corporation that the surviving corporation would inherit. (1999 Bar) ‘The argument is surviving corporat Scanned with CamScanner