Philippines Section of the Mergers & Acquisition Review 7th Edition
August, 2013 - Rafael A. Morales
There is no centralised data available on M&A in the Philippines. However, based on general investment data compiled by investment promotion agencies (such as the Board of Investments (BOI) of the Philippines) and the Bangko Sentral ng Pilipinas (BSP), total approved foreign direct investment (FDI) for 2012 reached 289.1 billion Philippine pesos, which surpassed the previous year’s record level of 258.2 billion Philippine pesos by 12 per cent. Further, the approved FDI for the fourth quarter of 2012 was the highest since 1996.
Manufacturing remained the top industry to receive investment pledges.
Transportation and storage came in second, followed by information and communication.
Based on data from the National Statistical Coordination Board (NSCB), approved investments of foreign and Philippine nationals in the fourth quarter of 2012 totalled 330.1 billion Philippine pesos, 44.9 per cent higher than the 227.8 billion Philippine pesos registered in the same period of the previous year. Pledges from Philippine nationals stood at 99.9 billion Philippine pesos, which accounted for 30.3 per cent of the total approved investments during that quarter.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
M&A is primarily governed by the Corporation Code and the Civil Code of the Philippines, as well as the Securities Regulation Code (SRC) when listed companies are involved. Furthermore, M&A would have to comply with the nationality requirements in the Philippine Constitution, the Foreign Investments Act, and other laws as applicable.
Most M&A does not require regulatory consent or approval except for some companies engaged in regulated businesses such as banking, insurance and telecommunications.
Acquisitions in the Philippines are typically structured as share purchases, as these are generally simpler to implement and more tax-efficient. In some instances, however, an asset acquisition may be preferred, where the primary considerations are the ability to cherry-pick attractive assets and the desire to avoid being saddled with pre-existing obligations of the selling entity. A third method of acquisition is through merger or consolidation.
There is a potential need to comply with tender-offer rules if the target is a public company (such as one listed on the Philippine Stock Exchange, or PSE) and the buyer will acquire at least 35 per cent of such company’s capital stock (in one or more transactions within 12 months). It may take at least two months to prepare for and complete the tender offer.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
i Determination of compliance with foreign ownership ceilings
As a general rule, there are no restrictions on the extent of foreign ownership of Philippine enterprises. However, the Constitution and statutes impose ceilings on foreign equity in certain areas of economic activity, such as the ownership of land, operation of public utilities, and the exploration, development and utilisation of natural resources. The Ninth Regular Foreign Investments Negative List (issued on 29 October 2012) enumerates some of the more important investment areas and activities that are reserved for Philippine nationals.
In this connection, the Philippine Supreme Court ruled that compliance with the Constitutional provision restricting the operation of public utilities to corporations at least 60 per cent of whose capital is owned by Philippine citizens, must be determined on the basis of the ownership of outstanding shares that are entitled to vote in the election of directors. According to the Supreme Court, other shares that are owned by Philippine citizens, but that are not entitled to vote for directors, must be disregarded, even if otherwise entitled to dividend and other rights.
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