A 2016 merger deal between Dennis Uy’s Udenna Corp. and Dutch firm KGL Investment Cooperatief U.A.s (KGLI Coop) has been voided by the Philippine Competition Commission (PCC).
The antitrust regulator, which said the acquisition was the first to be rejected for non-notification, also imposed a P19.6-million fine equivalent to 1 percent of the transaction’s value.
The deal involved KLGI Coop’s sale of all its shares in KGL Investment B.V. (KGLI-BV) to Udenna. 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 Negros Navigation Co. Inc. (NENACO).
“In an en banc decision released on February 19, the commission found the transaction, worth $120 million, met the P1-billion threshold, and as such, the transacting parties should have notified the PCC of the acquisition,” the PCC said in a statement.
“The law is clear: an agreement consummated in violation of the competition law’s compulsory notification requirement shall be fined and is considered void,” it added.
The antitrust regulator got wind of the transaction when it was tipped off via a December 28, 2016 letter complaint.
The PCC Mergers and Acquisitions Office (MAO) found that Udenna bought KGLI-BV via a share purchase agreement dated July 28, 2016 and the deal was consummated based on an August 19, 2016 deed of transfer.
Udenna and KGLI Coop initially sought to be excused from the notification rule, claiming that the buyout satisfied the “size of person test” under the Philippine Competition Act. The MAO, however, found that the transaction met both “size of person” and “size of transaction” thresholds.
“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% of KGLI-BV,” the PCC 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,” it added.
“This is a reminder for companies to comply with the Philippine Competition Act, including filing a sufficient notification prior to consummation of a merger that meets the thresholds.”
Udenna can still file a proper notification and go through the review process, the PCC said.
For its part, Udenna argued that its actions were based on its “interpretation” of the Competition law’s implementing rules.
“Udenna acted in good faith in consummating the transaction based on its interpretation of the newly-issued rules of the PCC, which in Udenna’s opinion are ambiguous. 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,” Udenna Vice-President Adel Tamano said in a statement.
Tamano said the PCC decision 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 is of the view that it 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,” he added.