Merger of Uy’s Udenna, Nenaco shareholder declared void by PCC

THE country’s antitrust agency on Monday voided the merger of Udenna Corp. and KGL Investment Cooperatief U.A. (KGLI Coop) for the firms’ failure to submit a notification to the government as mandated by the competition law.

In a 33-page decision, the Philippine Competition Commission (PCC) ruled to impose the twin penalties under Section 17 of Republic Act (RA) 10667, or the Philippine Competition Act, to Udenna and KGLI Coop. The provision states that “an agreement consummated in violation of this requirement to notify the commission shall be considered void and subject the parties to an administrative fine of 1 percent to 5 percent of the value of transaction.”

Udenna and KGLI Coop engaged in a $120-million merger in August 2016. This, according to the PCC, is way beyond the P1-billion threshold. Thus, it was mandatory for Udenna and KGLI Coop to notify the government agency of the acquisition.

The merger involved the sale of all of KGLI Coop’s shares in KGL Investment B.V. (KGLI-BV) to Udenna. KGLI-BV owned 39.71 percent of KGLI-NM Holdings Inc., a domestic firm that partly owns Negros Navigation Co. (Nenaco), at the time of the transaction.

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Picking up from a complaint letter in December 2016, the PCC discovered Udenna bought the entire shareholdings of KGLI-BV as agreed by the two parties through a share-purchase deal in July 2016 and the merger was completed the following month through a deed of transfer. The transacting parties sought to be excused from notification by claiming the acquisition is not covered by the “size of transaction test” required under the competition law.

However, investigation by the PCC found out the merger breached the P1-billion threshold. The acquiring Davao-based firm’s aggregate annual gross revenues in, into or from the country, or the value of its assets within domestic land were both above P1 billion at the time of the transaction.

On top of this, the PCC said the transacting parties also admitted the merger involved the entire shareholdings of KGLI-BV.

“It’s one thing for transactions to be found as anticompetitive during the review, [and] it’s another thing when businesses evade the legal requirement of notification in the first place,” the PCC said. “This is a reminder for companies to comply with the Philippine Competition Act, including filing a sufficient notification prior to consummation of a merger that meets the thresholds.”

The regulator advised Udenna to file a proper notification and go through the merger-review process to remedy the voided acquisition.

Either way, the transacting parties will also still have to pay the government 1 percent of the value of the merger amounting to P19.67 million. PCC Chairman Arsenio M. Balisacan and Commissioners Johannes R. Bernabe and Amabelle C. Asuncion all had the same opinion to impose the twin penalties, while Commissioner Stella Luz A. Quimbo only concurred to the imposition of administrative fine.

Udenna is a firm based in Davao City engaged in the business of distribution and retail of refined petroleum products and lubricants, tankering and interisland transport of petroleum products and other bulk products, ship management, operation of oil depots and storage facilities, operation of its industrial park, real-estate properties, waste management and environmental services. It is headed by Dennis A. Uy.

On the other hand, the PCC is mandated by the competition law to review mergers and acquisitions to ensure that these transactions will not be at the expense of consumers’ interest.

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