PCC voids merger of Dennis Uy's Udenna with 2GO shareholder
MANILA, Philippines – The Philippine Competition Commission (PCC) nullified Udenna Corporation's merger with a Dutch company that indirectly holds stake in 2GO Incorporated's parent firm, after they failed to notify the anti-trust body of the acquisition deal.
Aside from voiding the transaction, the PCC also imposed a fine of P19.6 million, equivalent to 1% of the value of their transaction, which both firms failed to run by the government agency as required by law.
Back in August 2016, Udenna – holding firm of tycoon Dennis Uy – bought all of KGLI Investment Cooperatief UA's shares in KGL Investment BV, which in turn owned 39.71% of KGLI-NM Holdings Incorporated.
KGLI-NM Holdings is a Filipino firm that owns about 60% of 2GO parent firm Negros Navigation Company Incorporated. (READ: How SM Investments acquired stake in 2GO)
The Udenna-KGLI merger, worth $120 million (P6.29 billion), is the 1st deal to be voided by the country's anti-trust body for non-notification. (READ: How the Sy family and Dennis Uy became business partners)
"The law is clear: an agreement consummated in violation of the competition law's compulsory notification requirement shall be fined and is considered void," reads the PCC's decision, which was published on Monday, February 19.
1st deal voided
Under Republic Act (RA) No. 10667 – also known as the Philippine Competition Act (PCA) – the antitrust regulator should be notified for merger and acquisition deals with transaction values above P1 billion, before the transaction is sealed.
Section 17 of the PCA states that parties who fail to notify the PCC of a transaction that meets the threshold are slapped "with a fine ranging from 1% to 5% of the transaction value, and their business deal voided."
The PCC said it got wind of the transaction when it was tipped off by a letter complaint on December 28, 2016.
According to the PCC, Udenna and KGLI "initially sought to be excused from notification," claiming that the buyout satisfies the "size of person test," but not the "size of transaction test" required under the PCA.
But the PCC said its Mergers and Acquisitions Office found that the transaction met the threshold based on both tests.
"The aggregate annual gross revenues in, into or from the Philippines, or the value of the assets in the Philippines of Udenna were both above P1 billion at the time of the transaction," the decision reads.
The PCC said Udenna and KGLI also admitted that the acquisition involved the entire shareholdings or 100% of KGLI-BV.
"It is one thing for transactions to be found as anti-competitive during the review. It's another thing when businesses evade the legal requirement of notification in the first place," said the government agency.
The PCC said Udenna can cure the violation by filing a proper notification and going through the merger review process.
PCC Chairman Arsenio Balisacan, Commissioner Johannes Bernabe, and Commissioner Amabelle Asuncion signed the decision. PCC Commissioner Stella Quimbo concurred with the imposition of the administrative fine but not with the void penalty.
"The suspension of the void penalty will not set a dangerous precedent because of the specificity of the factual milieu," Quimbo said in a separate opinion.
"What is dangerous is for the Commission to impose a void penalty, merely because tha law 'plainly' requires so, without regard to the commission's obligation to apply the law in consonance with its legislative intent, and without regard to the current state of rules on implementing the void penalty," she added.
Rappler sought Uy for comment, but he could not be reached as of posting.
Udenna is a domestic holding company whose subsidiaries are engaged in the distribution and retailing of petroleum products, commercial shipping, ship management, logistics, financial services, environmental services, as well as property development. – Rappler.com