ON MERGERS

& ACQUISITIONS
Self-Study Module #3

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What are mergers and How does the
acquisitions, and why are Philippine
they important? Competition
A merger occurs when two and bring the prices of their Commission
(2) or more firms join to form a
single firm. Acquisitions refer
products down. They can result
in economies of scale and scope,
(PCC)
to the purchase by one firm of enable transfer of technologies, deal with
anti-competitive
shares of another firm. broaden access to capital, and
Mergers and acquisitions can increase productivity, which
be good for consumers because will in turn enhance the global
competitiveness of Philippine
mergers and
they can enable businesses
to operate more efficiently, companies. acquisitions?
The PCC is empowered by
the Philippine Competition
Act to review mergers
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What are
to determine if these
will significantly reduce

anti-competitive mergers
competition in the market,
leading to higher prices,

and acquisitions?
fewer choices, and lower
quality of goods and services.
If PCC determines that a
ANTI-COMPETITIVE and acquisitions that can lead to given merger or acquisition
MERGERS AND ACQUISITIONS a market that is disadvantageous could substantially
refer to merger or acquisition to consumers because they prevent, restrict, or lessen
transactions that lead to could be harmful to competition. competition in the market, it
a substantial lessening of In particular, some mergers, has the authority to prohibit,
competition, or significantly especially those that involve or impose conditions on
impede effective competition in dominant companies, could mergers and acquisitions.
the relevant market. potentially turn a competitive
Simply put, there are mergers market into one that is not.

*Disclaimer: This self-study module is meant only as an introduction, and for general information purposes. It is not a substitute for the Philippine
Competition Act (PCA)
or its Implementing Rules and Regulations. It should not be taken as legal advice.
 ON MERGERS AND ACQUISITIONS
2 Self-Study Module #3

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Do companies have to submit all merger
or acquisition agreements for review and
approval by the PCC?
No. in the relevant market in excess of
Only M&A transactions wherein: minimum thresholds) that would The Commission,
a) the size of any of the parties trigger this notification requirement.
motu propio or on its
(measured in terms of gross In these instances, the parties are
revenues of asset value), and not allowed to consummate their
own, may also review
b) the value of the transaction agreement without the approval of even those mergers and
exceed One Billion Pesos the Commission until 30 days after acquisitions that do not
(P1,000,000,000.00) are required such notification.
by the Philippine Competition require notification, if
Failure to comply with this
Act to notify the Commission of
requirement will render the merger such transactions could
such agreement. Nonetheless, the
or acquisition void and could subject potentially be harmful
Commission is empowered to issue
the parties to an administrative fine to competition.
supplementary rules or guidelines
of between 1% to 5% of the value of
that identify other criteria (for
the transaction.
example, increased market share

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How might the Commission undertake
a review of a merger or acquisition
agreement?
Such a review will involve relevant market. It will look at the an implication on the level
rigorous economic analysis and number of actual and potential of competition. Mergers that
investigation. players in that market, and their result in a lessening of the
The Philippine Competition respective market shares, among number of competitors in a
Commission will need to obtain others. In its analysis of the effect market would concern the
relevant information and data of a merger or acquisition on competition authority.
from the parties to the merger, as competition, other key factors Entry barriers: The higher
well as third parties in the market that may be considered include: the entry barriers are,
(e.g. suppliers, customers). It may Number of competitors in the more circumspect a
also generate such necessary a market: A market with only competition authority will
information and data through its a handful of players will raise be in approving a merger
own resources. concern. Fewer players in the in a market with only a few
The PCC will need to define the market will obviously have players. Entry barriers may

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come in the form of high costs
of investment in entering the
market, regulatory barriers,
and ownership restrictions,
among others.
Current level of competition:
Markets with a vibrant
competition culture, with
flexible consumers and
competitors, can raise fewer
concerns when reviewed. But
a merger can cause a complete
change of incentives for
players. Even a market with
bubbling competition can
stagnate as a result of tacit
collusion to form a merger.
Switching cost for
consumers: Both actual and
perceived switching costs
can be a barrier to entry
and growth of existing and
potential competitors. The
higher the switching cost
for consumers, the more
concerns a merger will raise,
as the flexibility of the market
and the potential for new
entrants is limited. An example
for high switching costs can
be long-term agreements with
consumers such as exit-
fines, those typically signed by
subscribers of cellular service
suppliers or cable providers.
These are not necessarily
illegal, but they do affect
how a merger or acquisition
agreement between
competitors will impact the
market.
Eliminating a Maverick:
In markets where a new
entrant has developed into
a mavericka creator of
competitionthere is an
incentive for established
players to try and remove the
competitor by simply buying
it. The result of such mergers
is, in many cases, the call
of death for competition.
The new entrant created
a vibrant market, resulting
in reduced prices, and
introduction of new products
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ON MERGERS AND ACQUISITIONS
and technologies from
competitors.
Large existing players may
find that simply buying the
new entrant will get the
lost customers and market
share back. It also relieves
pressure from making future
investments in technological
upgrades and improvements.
This is convenient for
competitors, but is a
disadvantage for consumers.
In markets with few players,
a merger between a large
player and a maverick can be
destructive to competition.
Potential for collusion: If
the merger results in fewer
competitors with similar
market shares, the potential
for collusion, and therefore
the threat to competition, is
much higher.