Philippines - Law & Practice

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combine with any other person or persons to monopolise and merchandise or object in order to alter the price by spreading false rumours or by making use of any other article to restrain free competition in the market; and

(iii) a manufacturer, producer, processor or importer, wholesaler or retailer who will combine, conspire or agree in any manner with any person likewise or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines of any such merchandise or any article where such merchandise is used.

There is a bill pending before the Philippine Congress that seeks to increase the penalties imposable for the foregoing unlawful activities.

On the other hand, the Civil Code provides for the recovery of damages in case of unfair competition in agricultural, commercial or industrial enterprises.

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Labour law

The chosen mode of acquisition affects which labour law requirements are of primary concern to the acquirer.

As a general rule, in an asset purchase, any employment-related obligations or liabilities do not extend to the acquirer. However, in a share purchase, there is no concomitant change in the relations between the employer and the employee; therefore, unless the agreement between the acquirer and the seller specifically states otherwise, the acquirer will generally assume the liabilities of the corporation with respect to its employees.

In mergers or consolidations, any employment-related liability is transferred to the surviving corporation or to the consolidated corporation as if the surviving or consolidated corporation itself incurred such liabilities. Any pending claim, action or proceeding brought by or against any constituent corporations may be prosecuted by or against the surviving or consolidated corporation.

Recent legal developments

The Supreme Court of the Philippines recently promulgated its decision in Gamboa vs. Teves (GR. No. 176579) which interpreted, for the first time, the term "capital" as used in the Philippine Constitution. The Supreme Court ruled that "capital" refers only to "shares of stock entitled to vote in the election of directors" and not necessarily to the outstanding capital stock of a corporation.

In compliance with Gamboa vs. Teves, the SEC has released a draft of the "Guidelines on Compliance with Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalised and Partly Nationalised Activities" in March 2013. The SEC intends to conduct a series of public consultations before promulgating the guidelines pursuant to its rule-making powers.

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Takeover legislation

There is no specific takeover legislation in the Philippines, with the exception being the tender-offer rules in the Securities Regulation Code ("SRC").

There is a proposal to raise the threshold for a mandatory tender offer, which is currently set at 35% of a class of shares in a public company.

Stakebuilding

In the Philippines it is not customary for a bidder to build a stake in the target prior to launching an offer.

Dealings in derivatives are allowed but are subject to the provisions of the SRC and other SEC issuances, as well as to BSP regulation in the case of banks and other financial institutions. Disclosure is required where the derivatives would (either by conversion, exercise of an option or otherwise) result in a person acquiring beneficial ownership of shares in a public company at the threshold specified Disclosure thresholds.

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Disclosure thresholds

Changes in company shareholdings are reported to the SEC through the filing of a General Information Sheet ("GIS") within seven days of their occurrence. The top 20 shareholders of a company are also reported in the GIS and, accordingly, an acquisition that would make an acquirer one of the top 20 shareholders needs to be reported in the GIS.

In the case of a public company, the following are required to make disclosures to the SEC and the Philippine Stock Exchange (if the pubic company is listed):

(a) An acquirer of the beneficial ownership of more than 5% of the outstanding capital stock in a public company must disclose their ownership within five business days from acquisition of the shares.

(b) An acquirer of the beneficial ownership of 10% of the outstanding capital stock in a public company must also disclose their ownership within ten days from acquisition.

Reporting thresholds are legally prescribed and cannot be changed by a corporation even if the change is incorporated into its articles of incorporation or bylaws.

It is typical that some significant shareholders are parties to shareholders’ agreements that grant certain rights (such as right of first refusal or drag-along right) that may possibly pose a challenge to stake building.

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Obligations of acquiring shareholders

As a general rule, shareholders have to make known the purpose of their acquisition and their intention regarding control of the company. Where a shareholder’s acquisition of shares triggers a reporting requirement under the SRC, they are also required to disclose the purpose of their acquisition and their intentions regarding their control of the corporation. Information on any of their plans or proposals that will effect a major change in company business or structure must also be disclosed.

The negotiation phase

Disclosure requirements

Any activity that will result in a change in the control of the corporation should be disclosed immediately. This includes the acquisition or disposition of any assets, or the merger, consolidation, entry into a joint venture consolidation