CEMCO HOLDINGS, INC., petitioner, vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.

,
respondent
GR No. 171815, August 7, 2007

FACTS:
1. Union Cement Corporation (UCC) is a publicly-listed company which has two principal
stockholders - UCHC, a non-listed company (shares = 60.51%), and petitioner Cemco (shares =
17.03%).
2. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%, while Cemco
owned 9% of UCHC stocks.
3. In a disclosure letter (5 July 2004), BCI informed the Philippine Stock Exchange (PSE) that it and its
subsidiary ACC had passed resolutions to sell to Cemco BCIs stocks in UCHC equivalent to 21.31%
and ACCs stocks in UCHC equivalent to 29.69%.
4. In the PSE Circular for Brokers No. 3146-2004 (8 July 2004) - as a result of Cemcos acquisition of
BCI and ACCs shares in UCHC, CEMCOs total beneficial ownership (direct and indirect) in UCC has
increased by 36% and amounted to at least 53% of the shares of UCC
5. PSE, in a letter to the SEC (15 July 2004), inquired as to whether the Tender Offer Rule under Rule
19 of the Implementing Rules of the Securities Regulation Code (SRC) is not applicable to the
purchase by CEMCO of the majority of shares of UCC.
6. 27 July 2004 Director Justina Callangan (SECs Corporate Finance Department) confirmed,
SEC en banc resolved that the Cemco transaction was not covered by the tender offer rule.
7. National Life Insurance Company of the Philippines, Inc., (National Life) a minority stockholder of
UCC, sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender
offer but, Cemco refused.
8. 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco,
as buyer (7 days later, the transaction was consummated and closed).
9. National Life filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to
declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule
be applied to its UCC shares.
10. SEC - reversed and set aside its 27 July 2004 Resolution, and directed Cemco to make a tender
offer for UCC shares to National Life and other holders of UCC shares similar to the class held by
UCHC in accordance with Section 9(E), Rule 19 of the SSRC.
11. CEMCO filed a petition with the CA challenging the SECs jurisdiction to take cognizance of
National Lifes complaint and its authority to require Cemco to make a tender offer for UCC
shares, and arguing that the tender offer rule does not apply, or that the SECs re-interpretation of
the rule could not be made to retroactively apply to Cemcos purchase of UCHC shares.
12. CA affirmed SEC decision (SEC has jurisdiction to take congnizance of the complaint, and to
require CEMCO to comply with the Tender Offer Rule, and that the tender offer requirement
under the Securities Regulation Code and its Implementing Rules applies to Cemcos purchase of
UCHC stocks)
13. CEMCO files the Petition for Review (Rule 45, ROC).

ISSUE:
1. Whether or not the SEC has jurisdiction over National lifes complaint and to
require Cemco to make a tender offer for national Lifes UCC shares. YES
 2. Whether or not the rule on mandatory tender offer applies to the indirect
acquisition of shares in a listed company, in this case, the indirect acquisition
by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the
shares in UCHC, a non-listed company. - YES

RATIO:
1. In taking cognizance of National Lifes complaint against CEMCO and eventually rendering a
judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule
19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to
wit:
13. Violation

If there shall be violation of this Rule by pursuing a purchase of equity shares of a public
company at threshold amounts without the required tender offer, the Commission,
upon complaint, may nullify the said acquisition and direct the holding of a tender
offer. This shall be without prejudice to the imposition of other sanctions under the
Code.
The foregoing rule emanates from the SECs power and authority to regulate, investigate or supervise
the activities of persons to ensure compliance with the Securities Regulation Code, more specifically
the provision on mandatory tender offer under Section 19 thereof.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the
express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the
performance of the administrative duties entrusted to it. As a regulatory agency, it has the incidental
power to conduct hearings and render decisions fixing the rights and obligations of the parties. In fact, to
deprive the SEC of this power would render the agency inutile, because it would become powerless to
regulate and implement the law.

The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the
complexity and the constantly-fluctuating nature of the market and the impossibility of foreseeing all the
possible contingencies that cannot be addressed in advance. Moreover, petitioner is barred from
questioning the jurisdiction of the SEC. It must be pointed out that petitioner had participated in all the
proceedings before the SEC and had prayed for affirmative relief.

2. Under Section 19 of Republic Act No. 8799, it is stated:

Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends
to acquire at least fifteen percent (15%) of any class of any equity security of a listed
corporation or of any class of any equity security of a corporation with assets of at
least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more
stockholders with at least one hundred (100) shares each or who intends to acquire
at least thirty percent (30%) of such equity over a period of twelve (12) months shall
make a tender offer to stockholders by filing with the Commission a declaration to
that effect; and furnish the issuer, a statement containing such of the information
 required in Section 17 of this Code as the Commission may prescribe. Such person or
group of persons shall publish all requests or invitations for tender, or materials
making a tender offer or requesting or inviting letters of such a security. Copies of
any additional material soliciting or requesting such tender offers subsequent to the
initial solicitation or request shall contain such information as the Commission may
prescribe, and shall be filed with the Commission and sent to the issuer not later than
the time copies of such materials are first published or sent or given to security
holders.

Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to thirty-five percent (35%). It is further provided therein that mandatory
tender offer is still applicable even if the acquisition is less than 35% when the purchase would result
in ownership of over 51% of the total outstanding equity securities of the public company.

The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares
through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule.

Stated differently, a tender offer isan offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the terms specified in the offer.

Tender offer is in place to protect minority shareholders against any scheme that dilutes the share
value of their investments. It gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those of the
majority shareholders.

The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of
UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory
tender offer rule. The legislative intent of Section 19 of the Code is to regulate activities relating to
acquisition of control of the listed company and for the purpose of protecting the minority
stockholders of a listed corporation. Whatever may be the method by which control of a public
company isobtained, either through the direct purchase of its stocks or through an indirect means,
mandatory tender offer applies. As appropriately held by the Court of Appeals:

The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a
result of the transaction, it became an indirect owner of UCC. We are constrained, however, to
construe ownership acquisition to mean both direct and indirect. What is decisive is the
determination of the power of control. The legislative intent behind the tender offer rule makes clear
that the type of activity intended to be regulated is the acquisition of control of the listed company
through the purchase of shares. Control may [be] effected through a direct and indirect acquisition
of stock, and when this takes place, irrespective of the means, a tender offer must
occur. The bottom line of the law is to give the shareholder of the listed company the opportunity to
decide whether or not to sell in connection with a transfer of control. x x x
HELD:
WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March
2006, respectively, affirming the Decision dated 14 February 2005 of the Securities and Exchange
Commission En Banc, are hereby AFFIRMED. Costs against petitioner.