Philippines eases corporate buyout rules to suppress bankruptcies

Manila, Philippines. Photo: David Milmont/unsplash

Philippine antitrust authorities have loosened restrictions on mergers and acquisitions in an effort to smooth the way for buyouts that would rescue failing businesses and protect jobs.

The Philippine Competition Commission will now exempt from review mergers and acquisitions valued at less than 50 billion pesos ($1 billion) over a two-year period, up from the original ceiling of 2.4 billion pesos.

The commission cited the objectives of “promoting business continuity and resumption of all economic activities” during the coronavirus pandemic. This move was authorized by the emergency pandemic response legislation, according to the Oct. 5 announcement.

But critics say the deregulation opens the door for powerful conglomerates to strengthen their grip on the industry.

A commission review, which examines whether a potential merger or acquisition will harm free competition, takes as long as three months. Now companies can go after relatively larger targets without facing that hurdle.

The law that created the commission, the Philippine Competition Act, finally passed in 2015 after stalling in the legislature for 24 years. The commission screened 204 mergers and acquisitions through last year, for a total of 3.3 trillion pesos in deals.

During that period, 188 deals passed the test, including Japan Tobacco’s acquisition of Philippine peer Mighty Corp.

However, a merger of two sugar millers — one of them a unit of the Philippine conglomerate JG Summit Holdings — was blocked. The commission found that the new entity would monopolize a regional market.

Another conglomerate, San Miguel, withdrew a bid to purchase a rival cement company after the commission expressed concerns about the deal. The transaction would have been close to $2 billion, according to estimates.

Some corporations had apparently hesitated at acquisitions out of fear of being rejected. The Philippine government expects the loosening of antitrust review requirements will lower the psychological hurdles in the business community and jump-start the stagnant merger activity.

The main factor behind the softening of regulations is the economic impact left by the pandemic. Lockdowns have left several businesses in financial distress.

Out of 1.5 million micro, small and midsized enterprises registered with the Department of Trade and Industry, roughly 90,000 remained shut down at end of September, according to the department’s data.

In July, 4.5 million people had lost their jobs, double the figure from previous years. The government forecasts a 5.5% economic contraction for this year. Officials have hinted at the potential of projections growing worse.

However, deep-pocketed conglomerates have maintained an appetite for acquisitions. JG Summit’s sugar miller, Universal Robina, went on to announce in June a play for a separate rival.

This time, the government appears to see big-name conglomerates as a solution to rescue businesses from going under, saving jobs in the process.

The government aims to get tougher on cartels as well, an area in which the Philippines lags behind the rest of Southeast Asia. Competition commission personnel made redundant by the deregulation will be reassigned to the cartel review panel.

“With fewer merger notifications expected, the [commission] will intensify action in other areas of enforcing the competition law especially against anti-competitive agreements and abusive practices that harm consumers or unscrupulously take advantage of the crisis,” said Arsenio Balisacan, the commission chairperson.

Some people question the motives of these measures. Arlene Brosas, a lower-chamber opposition lawmaker, asked in an Oct. 5 legislative session how businesses who stand to profit from the changes can be monitored, according to local media.

Brosas made sure to mention Dennis Uy, the founder of the oil conglomerate Udenna Group, when making her statements. Uy is a donor to President Rodrigo Duterte’s election campaign, and the two are considered close.

If viewed in another light, the regulatory easing could be seen as support for the conglomerates.

Udenna has made a series of purchases over the past few years, including that of a waterworks operator, a logistics company, and the entity that runs the local arm of the Japanese convenience store chain FamilyMart.

Udenna is expanding its business profile more quickly than other conglomerates. San Miguel has been actively engaging in large acquisitions as well.

Under this status quo, conglomerates could move further into building scale through mergers and acquisitions. Some conglomerates are not as acquisitive as others, which could lead to a change in hierarchy among megacorporations.

This article was first published in Nikkei Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.