Mergers and Acquisitions Office vs. Just Solar Corporation, et al., PCC Decision No. 05-M-008/2021 dated 16 September 2021
On 21 April 2022, the Philippine Competition Commission (the “Commission”), released its PCC Decision No. 05-M-008/2021 dated 16 September 2021 finding that the Guidelines on the Computation of Merger Notification Thresholds (“Threshold Guidelines”) was inapplicable to our clients’ transaction. Thus, the complaint by the Mergers and Acquisition Office (“MAO”) against our client, the Soriano Group, was dismissed. The Commission found that there was no violation of the mandatory notification requirements under Republic Act No. 10667, otherwise known as the Philippine Competition Act (“PCA”).
MAO’s complaint involved a Share Purchase Agreement (“SPA”) executed on January 2018 between the Soriano Group (as the sellers) and the acquiring entity, Just Solar Corporation (“Just Solar”), involving 60% of the outstanding capital stock of Solar Powered Agri-Rural Communities Corporation (“SPARC”).
In its complaint against the Soriano Group, MAO stated that the PhP1 Billion threshold (i.e., Size of Transaction Test) was supposedly breached based on SPARC’s 2016 Audited Financial Statements (pursuant to the Threshold Guidelines). It bears highlighting that at the time of the execution of the SPA, SPARC’s 2017 Audited Financial Statements (“AFS”) was still pending approval by the Board of Directors of SPARC. However, SPARC periodically issued regularly-prepared balance sheets and other interim financial reports for purposes of submission to management and its creditor-bank. These regularly prepared interim reports undeniably showed that its assets and revenue was below the PhP1 Billion threshold.
The team in charge of the case included partners Joe Nathan P. Tenefrancia, Manuel L. Manaligod Jr., and Ramon Manolo A. Alcasabas, and seasoned senior associate Francis L. Fragante. Attorneys Alcasabas and Fragante, who directly handled the matter and spearheaded the effort, found through persistent research, hardwork and legal ingenuity, vulnerabilities or infirmities in the Threshold Guidelines which were cited as basis by the MAO in questioning the subject transaction.
The handling team argued that the Threshold Guidelines do not apply, and that as allowed under the Implementing Rules and Regulations (“IRR”) of RA No. 10667, the Soriano Group had properly relied on the post-transaction Audited Financial Statements from the year 2017 and other regularly prepared interim financial statements of SPARC from August to December 2017, which showed that the Size-of-the-Transaction threshold, which was then PhP1 Billion, was not met. The Commission, after much deliberation, ultimately agreed.
The argument on the inapplicability of the Threshold Guidelines clinched the win for the Soriano Group. The Commission ultimately found the Threshold Guidelines indeed inapplicable as the same were not effective at the time of the transaction. It held that the IRR should apply, allowing the use of the 2017 AFS and the interim financial statements or balance sheets, which indubitably showed that the PhP1 Billion threshold for the Size of the Transaction Test was not breached.
Even further, the Commission, applying the rule on availability and proximity, held that the latest Audited Financial Statement at the time of the transaction would be too far-removed from the current financial status of the acquiring entity, thus the usage of regularly prepared interim financial statements was only proper.
The case, which threatened to render the subject transaction null and void, was a crucial win for the Soriano Group and their legal team, as it allowed the growth and development of a small-player in the solar energy industry, and more importantly, it showed that, the PCA is true to its purpose to promote market competition and equal opportunity to all.