Grave abuse

(First of two parts)

According to the Philippine Competition Commission (PCC), it is undertaking a comprehensive review of the acquisition by the Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom of certain telecommunications assets of the San Miguel Corp. (SMC) group, in particular Vega Telecom, Bow Arken Holding Company, Brightshare Holdings Corp. and the radio frequencies owned by these companies.

The PCC said the review is being undertaken pursuant to its power to review mergers and acquisitions under Section 16 of RA 10667 of the Philippine Competition Act and its implementing rules and Regulations (IRR), to determine whether such transaction is prohibited under the law.

The transaction refers to the acquisition by PLDT and Globe of 50 percent each of Vega, Bow and Brightshare and rights over certain frequencies, such as the 700MHz spectrum, which is the subject of co-use agreements between the acquiring and acquired parties, the commission said.

PCC wants to know whether first, the merger will substantially prevent, restrict, or lessen competition in the relevant market, or second, adversely impact consumer welfare.

There is something the PCC is not telling the public though. But before we can fully appreciate what this is, let me backtrack a little.

RA 10667 was signed into law by President Aquino on July 21, 2015 and took effect on Aug. 8 of last year.

PCC was organized just this Feb. 1. On Feb. 12, the commission issued Memorandum Circular 16-001, series of 2016, which provided for the transitory rules and guidelines for mergers and acquisitions worth over P1 billion.

The circular, signed by PCC chairman Arsenio Balisacan, requires notification from parties to merger and acquisition agreements of over P1 billion that were, or to be executed, from March 8, 2016  or the effectivity of the circular until the official IRR of RA 10667 is promulgated. But mergers and acquisitions executed before the effectivity of the memorandum circular are exempted from the notification requirements.

According to the transitory rules, the PCC exempts from the requirement to notify the commission parties to merger or acquisition agreements wherein the value of the transaction exceeds P1 billion and which were executed or otherwise implemented after the effectivity of the law, but before the effectivity of the Feb. 12 transitory rules.

The second paragraph of the rules provide that parties to a merger or acquisition agreement wherein the value of the transaction exceeds P1 billion and which are to be executed or otherwise implemented after the effectivity of this circular, but before the effectivity of the IRR shall notify the PCC through a letter addressed to the commission containing the following information, among others: parties to the merger or acquisition; type of transaction (whether a merger or an acquisition); consideration; key terms of the transaction; and timing for the execution or implementation of the transaction.

It said mergers and acquisitions, by these two paragraphs, shall be deemed approved (underscoring ours) and that the parties which notify the commission in accordance with the immediately preceding paragraph may proceed to execute or implement their agreement.

Par. 4 of the transitory rules also provide that mergers and acquisitions that are deemed approved under this memorandum circular shall benefit from Section 23 of RA 10667 and may not be challenged under this law, except when the notification required under paragraph 2 above contains false material information. (Sec. 23 of the law states that merger or acquisition agreements that have received a favorable ruling from the PCC, except when such ruling was obtained on the basis of fraud or false material information, may not be challenged under this Act.)

The transitory rules and guidelines remained valid until superseded upon effectivity of the IRR to be promulgated by the PCC.

So what is clear from the PCC transitory rules is that mere notification is required for transactions valued at over P1 billion. Prior to the IRR, there was no M&A notification form as is the case today so that submitting parties before just had to be guided by what other companies have done in the past as well as those followed in other countries.

Before the IRR of RA 10067 took effect 15 days after its posting on June 3, PLDT and Globe notified the PCC about the transaction (which happened around end-May) involving the acquisition of certain SMC assets valued at P69 billion or way above the P1 billion threshold.

But lo and behold. Here comes PCC belatedly saying that transactions are not automatically “deemed approved” and that mere filing of a notification with the PCC does not guarantee a “deemed approved” status for the subject transaction, even under the transitory rules.

It said parties to a proposed merger and acquisition cannot make the determination of whether a transaction is deemed approved since this is for the PCC to determine.

PCC said that claims that transactions entered into and reported to the PCC prior to the publication of the IRR of the Philippine Competition Act fall outside of PCC’s authority to review because these are “deemed approved” under the applicable memorandum circulars are erroneous and not accurate.

“PCC reviews all submissions for sufficiency and completeness of information, and decides, after due consideration, if the subject transaction will be deemed approved. If a submission is determined to be insufficient or defective in form and/or substance, for example, the PCC may reject such a submission. Omission of key terms of the transaction and submission of false material information may also be grounds for rejection. Certain submissions may, likewise, raise serious concerns regarding potential violations of the PCA. The PCC conducts full and expeditious review of a notification of transaction only after receipt of complete information. Under the law, the purpose of such a review is to prevent anticompetitive mergers and acquisitions. In its review, the PCC exercises all powers granted by the law,” it said.

On June 17, PCC said it had notified PLDT and Globe that it would pursue a comprehensive review of their acquisition of SMC’s telco businesses, and it would approve or disapprove the subject transaction after a full review.

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