Amicus Curiae

A need to clarify issuances of the Philippine Competition Commission

James Patrick O. Alojado

May 17, 2017

Since the passage of the Philippine Competition Act (PCA) in July 2015 and the issuance of its implementing rules and regulations (IRR) last year, the Philippine Competition Commission (PCC) has released several issuances affecting the PCA’s compulsory notification requirement. Unavoidably, some issuances seem to raise issues with other existing regulaions.

These issuances have taken the form of either clarificatory notes or memorandum circulars. The first clarificatory note this year, Clarificatory Note No. 17-001 (CN 17-001), deals with compulsory notification in voting securities acquisition. Its paragraph 5 clarifies that voting securities acquisitions are transactions in which the acquiring entity proposes to buy voting securities from shareholders of the acquired entity, rather than from the entity itself, such as tender offers, third party and open market transactions.

A tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire outstanding equity securities of a public company. Tender offers are also regulated by the Securities Regulation Code (SRC) and its IRR. The Securities and Exchange Commission (SEC) enforces these laws. A transaction subject to tender offer rules has to comply with filing, disclosure and publication requirements.

A transaction may thus be covered by both tender offer rules and regulations for compulsory notification. Reading both raises some issues.

The PCA IRR requires parties to notify the PCC before the execution of a definitive agreement, such as a share purchase agreement. It also states that the acquiring party, in submitting an affidavit declaring the intention of completing the proposed transaction in good faith, must affirm that the intention to make the tender offer has been publicly announced. Before the PCA, the execution of the share purchase agreement usually precedes the public announcement of the tender offer. However, under current PCC regulations, this cannot be done until both parties filed their respective notification forms to the PCC.

Further, under the SRC IRR, a tender offer should as much as possible be completed within sixty (60) business days from the date the intention to make such offer is publicly announced. Under the PCA IRR, however, compulsory notification involves the following phases: (1) a period to determine sufficiency of the notification, which takes at least fifteen (15) days (In practice, the period to determine sufficiency of the notification usually exceeds the 15-day period.), (2) the Phase I review of up to thirty days, and (3), if the PCC deems necessary, the Phase II review of up to 60 days.

Thus, where a tender offer transaction proceeds to a Phase II review, the minimum 45-day period can increase to about 105 days, well exceeding the 60-period under the SRC IRR. During this period of PCC review, the tender offer period cannot be conducted because of the prohibition to consummate the transaction under the PCA.

Moreover, a target public company may not actually be privy to the transaction between the acquirer and the shareholders. The PCA IRR thus requires the acquirer to serve a notice to the target company to ensure that the target is aware of its reporting obligation.

CN 17-001 further requires the target to submit its notification “no later than ten (10) calendar days from the day the Acquiring Entity files its form.” Also, the failure by the notified public company to submit its notification within the said 10-day period may lead “to insufficient information necessary for the review of the transaction” and “the Commission may be constrained to proceed to a Phase II review of the transaction.”

Considering the depth of information required to fill up the notification form, the target that is only notified of the tender offer transaction is likely unable to comply with the 10-day period.

In light of these issues, compliance with PCC regulations with a tender offer aspect will definitely affect the timetable of a transaction. This will entail careful planning for the smooth execution of the proposed transaction. We can also hope that subsequent issuances from either the PCC or the SEC will harmonize and address these issues.