PH Competition Commission doubles threshold for review of mergers

MANILA, Philippines – The Philippine Competition Commission (PCC) doubled the threshold for reviewing merger and acquisition (M&A) transactions in the country, after the agency took into account the high inflation rate, economic growth, and its limited resources.

The PCC published a memorandum circular on Monday, March 5, raising the thresholds to P5 billion for the value of assets or revenues of the parent entity, and P2 billion for the size of the transaction as defined in the implementing rules and regulations. (READ: PCC: Make policy changes to open telco, energy markets)

This was from the P1-billion default threshold that the PCC has been following since the Philippine Competition Act was enacted in 2015.

"The adjustment stems from various considerations, including the size of actual notifications to date, the country's economic growth, overall inflation, and efficient use of the commission's limited resources," PCC Chairman Arsenio Balisacan said in a statement.

Inflation hit 4% last January, its highest level in 3 years, as the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) law kicked in. 

The PCC said it will continue to conduct regular monitoring of the M&A notifications and will revisit the threshold level periodically to make sure it is responsive to changes in the markets and the economy.

The memorandum circular also states that there will be automatic adjustment of the threshold every year beginning March 1, 2019, based on the official estimate of the nominal gross domestic product (GDP) growth of the previous calendar year rounded up to the nearest hundred millions.

"The annual adjustment based on nominal GDP growth ensures that the thresholds maintain their real value over time and relative to the size of the economy," Balisacan said.

The thresholds are used to determine if a transaction triggers premerger reporting requirements to the PCC.

Under Section 3 of the implementing rules and regulations, parties to a transaction must notify the PCC if they satisfy two tests: size of person and size of transaction.

Size of person refers to the value of assets or revenues of the ultimate parent entity of at least one of the parties, while size of transaction refers to the value of the assets or revenues of the acquired entity.

Reasonable move

The PCC said it finds it reasonable to increase the initial thresholds provided by the Philippine Competition Act and its implementing rules and regulations.

"Adjusting the thresholds requires a delicate balance to make sure that it's not too low as to create an undue burden on business, and that it's not too high that transactions with potential anticompetitive effects in the market evade the scope of antitrust reviews," Balisacan said.

The new thresholds will take effect 15 days after publication on Monday.

The revised thresholds will apply to M&A transactions with definitive agreements executed after the effectivity of the memorandum circular.

"They do not apply to mergers or acquisitions pending review by the commission, notifiable transactions consummated before the effectivity of the memorandum circular, and transactions already subject of a decision by the PCC," said the agency.

To date, the PCC has received 152 notifications – equivalent to 134 transactions – and approved 125 transactions, worth a total of P2.25 trillion.

Others are still in different stages of review, said the PCC. Majority of these came from the manufacturing, financial, electricity, real estate, and transportation sectors. – Rappler.com