Congress snuck a provision in the new Bayanihan law to keep the Philippine Competition Commission (PCC) from going after problematic mergers and acquisitions (M&As), a provision that was neither consulted with the PCC nor included in the original approved versions of the bill.
For two years, companies will not be legally required to notify the PCC about their M&A, unless the deal is worth more than P50 billion, according to the Bayanihan to Recover As One Act, or Bayanihan II, which President Rodrigo Duterte signed earlier this month.
The same law also bars the PCC from launching its own investigations of questionable M&As worth below P50 billion, even if it had a reason to suspect the deal might harm consumers and other market players. This will last for a year.
This caught many stakeholders off guard. Neither the original approved versions of the Bayanihan 2 in the House of Representatives nor the Senate had this provision in the first place.
Legislators in the bicameral committee that hammered out the version which Duterte signed, however, inserted this provision, without consulting the antitrust body. The Inquirer learned that the PCC got wind of this only a few days before the bill got ratified back in August.
In effect, the lawmakers have mandated the PCC to look away at a time when close scrutiny is more needed than ever, since the pandemic and the lockdown made smaller businesses and consumers most vulnerable.
The PCC commented on the issue for the first time on Monday (Sept. 14). In a statement, it said will issue implementing guidelines for pending and future transactions. It, however, did not expound on the impact this provision would have on PCC’s operations.
Interestingly, a similar provision could be found in another economic stimulus bill that got passed in the House, but not in the Senate. This was in the P1.3 trillion stimulus bill called Arise, or the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines.
Among other provisions, the Arise bill would have exempted essential business from having to notify the PCC about their M&A, as long as the deal was done a month before the quarantine, during it, or a year after restrictions eased.
The PCC flagged this provision in the Arise bill, even though it clarified that it was generally supportive of the aim to stimulate the economy, a position paper in June read. Back then, the PCC also said that it was “not afforded the opportunity to be heard” by lawmakers.
“Experience suggests that antitrust policies must not be set aside at a time when economic crisis looms large. Consolidation, or mergers and acquisitions of firms, is particularly regulated under the PCA precisely because of the lessons learned from global economic history,” it read.
“A crisis is temporary, and consolidations seeking to save the industry may create greater consumer injury in the long run. A prolonged suspension of the PCC’s merger review mandate runs the risk of more injurious consolidations being executed,” it added.
The motivations and the basis for the provision under Bayanihan II remain to be seen. A renowned competition expert, who requested anonymity to speak freely in this article, said that the data would show that problematic deals in the past were actually all worth below P50 billion, not above it.
“They have a mistaken notion of what harms the economy. They think only big M&As [over P50 billion are the problem]. That is not based on evidence and facts,” the expert said.
Out of more than 200 M&As that the PCC reviewed in the past four years, only 14 were worth above P50 billion. Moreover, none of these 14 deals were considered harmful, or anticompetitive in competition jargon, the expert said.
They were not considered anticompetitive because deals of this size were usually global transactions that had little impact in the Philippines, and were only reviewed here because the business had some operations or assets in the country, the expert said.
On the contrary, the problematic deals that the PCC flagged, corrected, and even blocked were M&As by local players that were worth billions of pesos, sometimes as much as P10 billion, but certainly not more than P50 billion.
“I think what the law is trying to accomplish by this provision is to fast-track the business consolidation so that those who are going bankrupt or find it difficult to survive because of the quarantine won’t have to close shop. They’ll have a white knight that will save their operations,” the expert said.
However, white knights can save who they want to even under the Philippine Competition Act. Under the competition law, an M&A that got blocked by the PCC can even be exempted from that block if the company was “faced with actual or imminent financial failure,” and if the deal was the only and the least anticompetitive way to save the company.
Even if the Bayanihan provision would last for only two years, lawmakers failed to see the harmful consequences which might last longer than that, and be more difficult to correct.
By the time the PCC can act again, these companies that ate up their competitors through unchecked M&As would already have a bigger slice of the market, the expert said. Then, they would be in a stronger position to dictate prices, or make the environment difficult for new competitors to enter.
Nevertheless, there are still a few things that the PCC can do under the new regulatory environment. It can wait for the one year provision to lapse, for example, and then independently launch its review of M&As even if they were already consummated, the competition expert said.
Therefore, businesses that would want to avoid any legal issues a year from now could still voluntarily submit their M&A for review, even if it was below P50 billion, the expert said.
This single provision threatens to undermine the Philippine Competition Act, a landmark law that took Congress more than two decades to pass. The law was meant to keep big business in check. It even gave the PCC the power to “unwind” a done but anti-competitive deal.
“Who was pushing for this? Why were they pushing for it? No business sector was consulted. Could it be that there is someone in the political arena who has business interests?” the competition expert said, without dropping any names.
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