On 8 January 2019, the Philippine Competition Commission (“PCC”) issued Clarificatory Note No. 19-001 (“CN No. 19-001”) to guide the public on the coverage of compulsory notification under Republic Act No. 10667, otherwise known as the Philippine Competition Act (“PCA”) and its Implementing Rules and Regulations (“IRR”).
Under Section 17 of the PCA, parties to an acquisition agreement wherein the value of the transaction exceeds one billion pesos (P1,000,000,000.00) are prohibited from consummating their agreement until thirty (30) days after providing notification to the PCC.
Under Section 4 of the PCA, “acquisition” is defined as the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by: (a) one (1) entity of the whole or part of another; (b) two (2) or more entities over another; or (c) one (1) or more entities over one (1) or more entities.
Acquisitions of land, which is an asset, where the land is only an incidental part of the transaction, are not covered by CN No. 19-001. Moreover, the contribution of land in a joint venture by acquiring entities (i.e. joint venture partners) into the acquired entity (i.e. joint venture company) is likewise not covered by CN No. 19-001.
CN No. 19-011 clarifies that the acquisition of land that is “not for the purpose of obtaining control” is not subject to the compulsory notification requirement under the PCA. More importantly, CN No. 19-011 provides that the acquisition of land is “not for the purpose of obtaining control” when the following requisites are present:
(a) The acquiring entity will not obtain control over an acquired entity as a result of the land acquisition; or
(b) The acquiring entity will not obtain control over a part of an acquired entity as a result of the acquisition:
i. The land to be acquired does not contain improvements that constitute an “operating segment” that will result in a horizontal or vertical relationship between the Notifying Group of the acquiring and acquired entities; and
ii. The land to be acquired does not contain improvements that may be considered as an “essential facility.”
In connection with Item (a), CN No. 19-001 clarifies that the acquiring entity is presumed to have acquired control over the acquired entity, if the acquired entity is engaged in a real estate business, and the acquiring entity, including the entities within its Notifying Group, will be in a position to replace, or substantially replace, the acquired entity in the business or in part of the relevant business, or will be allowed to build up a market presence or develop market access within a reasonably short period of time.
In connection with Item (b)(i), CN No. 19-001 defines an “operating segment” as a component of an entity that engages in business activities, from which it earns, or may earn, revenues and incur expenses (including revenues relating to transactions with other components of the same entity), irrespective of whether it is organized as a separate legal entity or not.
Finally, in connection with Item (b)(ii), CN No. 19-001 defines an “essential facility” as a facility that cannot be duplicated in a practicable manner by would-be competitors, or a facility that is indispensable in carrying on another person’s business because there is no actual or potential substitute in existence. Denying access to an essential facility results in harm to competition through the foreclosure of existing or potential competitors from said facility.
The full text of CN No. 19-001 may be accessed here.