June 23, 2018, 10:22 am
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PCA voids M&A

The Philippine Competition Commission (PCC) has thumbed down the acquisition by Dennis Uy’s Udenna Corp. of a stake in Negros Navigation Co. Inc. (Nenaco) pending regulatory compliance.

The PCC also fined Udenna and KGL Investment Cooperatief U.A. (KGLI Coop) P19.6 million, equivalent to 1 percent of the value of the transaction, for failing promptly disclose the sale of the latter’s stake in Negros Navigation to the government. 

Udenna in a statement said it is “currently weighing its options and will choose that which it deems will be best to protect the interests of the group and its shareholders.” 

Adel Tamano, Udenna vice president for corporate affairs, said the company has “sufficient basis to challenge the PCC decision either by filing a Motion for Reconsideration with the PCC, or through a Petition to the Court of Appeals.”

The transaction involved the sale to Udenna by KLGI Coop of all its shares in KGL Investment B.V. (KGLI-BV). At the time of the transaction, KGLI-BV owned 39.71 percent of KGLI-NM Holdings, Inc. (KGLI-NM), a Philippine company that partly owns Nenaco.

Mercedes Torrijos, PCC spokesman, said the transaction is currently considered void as a result of the failure to promptly inform the PCC of the transaction though the two parties can restart the approval process by submitting necessary documents for the PCC’s green light.  

Once the transaction is cleared by the PCC, the sale then becomes valid, said Torrijos. 

The PCC in an en banc decision released yesterday said the value of the transaction, $120 million, is sufficient to warrant a mandatory notice to the Commission.  The PCC has set to P1 billion the threshold for reviewing merger and acquisition .

“Under Section 17 of the Philippine Competition Act (PCA), parties who fail to notify the PCC of a transaction that meets the threshold are slapped with a fine ranging from 1 percent to 5 percent of the transaction value, and their business deal voided,” the PCC said.
“The law is clear: an agreement consummated in violation of the competition law’s compulsory notification requirement shall be fined and is considered void,” PCC said in its  decision.
The PCC, however, said it only learned of the transaction when it was tipped off by a letter-complaint on Dec. 28, 2016.
In its investigation, the PCC Mergers and Acquisitions Office (MAO) found Udenna bought the entire shareholdings of KGLI-BV as signed by the two parties through a Share Purchase Agreement dated July 28, 2016, and the deal consummated as reflected in a Deed of Transfer dated Aug.  19, 2016.
Udenna and KGLI Coop initially sought to be excused from notification, claiming the buyout satisfies the “size of person test,” but not the “size of transaction test” required under the PCA and its implementing rules. 

But the PCC MAO’s investigation found  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 parties also admitted that the acquisition involved the entire shareholdings or 100 percent of KGLI-BV,” it said.
“It’s 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. This is a reminder for companies to comply with the PCA, including filing a sufficient notification prior to consummation of a merger that meets the thresholds,” it added said.
It a statement, the PCC said  one thing that the parties can do is file a proper notification, and go through the merger review process.

Tamano said in a statement  the transaction was executed one month after the Implementing Rules and Regulations (IRR) of the PCA took effect. Udenna acted in good faith in consummating the transaction based on its interpretation of the newly-issued rules of the PCC.

“At the time of completion of the subject transaction, the PCC Rules were new, and Udenna had no guidelines, interpretative rulings or precedents to rely on,” Tamano said.
“Udenna believes that the decision to declare the transaction void and at the same time impose a penalty of P19.7 million was unduly harsh and uncalled for, particularly considering the interest of the Udenna Group’s many stakeholders and the decision’s effect on business.

Udenna believes that PCC had the discretion not to declare the subject transaction void but the majority, or three  of the four  seating commissioners concluded differently. The fifth seat in the commission is currently vacant,” he added.
Tamano said Udenna remains confident that its acquisition of the shipping holding company is assured considering that it has paid the agreed consideration and its counter-party is still committed to the consummation of the transaction. 

“Udenna also has the option to submit to the PCC decision and file a notification to the PCC,” he said.

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 and property development. KGLI Coop and KGLI-BV are both domiciled in the Netherlands.
Under the PCA, the country’s anti-trust body is mandated to review mergers and acquisitions to ensure that these deals will not prejudice the interest of the consumers.
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