Corporate M&A 2013-2014

Legal Practice Guide

Corporate M&A 2013-2014


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Philippines - Trends & Developments

SyCip Salazar Hernandez & Gatmaitan is the largest law firm in the Philippines, with its principal office in Makati City, the financial and business centre of Metropolitan Manila. This full-service firm has capabilities in every significant area of practice, from criminal law to mergers and acquisitions. Throughout its history, the firm’s ethic, its standards of excellence and diligence, and its sense of duty to its clients have brought it time and again to the forefront of the country’s development programmes, as well as the cutting edge of legal practice.

The authors

Rafael A. Morales is the managing partner at SyCip Salazar Hernandez & Gatmaitan. He is a professorial lecturer at the College of Law of the University of the Philippines, as well as the author of two books (The Philippine General Banking Law (Annotated) and The Philippine Securities Regulation Code (Annotated)), and numerous legal articles. Among his many recognitions, he is cited in Euromoney Legal Media Group’s Guide to the World’s Leading Banking Lawyers, and is included in Asia Legal Business’ list of 100 pre-eminent Asia-Pacific lawyers. He is a past president of the Inter-Pacific Bar Association.

Philbert E. Varona is a partner at SyCip Salazar Hernandez & Gatmaitan whose practice areas include mergers and acquisitions; banking, finance and securities; foreign investments; and infrastructure and government contracts. He was a professorial lecturer at the Ateneo de Manila University, and has contributed several articles to Asian Legal Business's and other publications. He co-authored the Philippine chapter of the 2011/2012 edition of Privatisation & Public Private Partnership, as well as the Philippine chapter of M&A in Asia, a publication on the legal framework on mergers and acquisitions in the region.

Philippine Mergers & Acquisitions – An Overview

Mergers and acquisitions in the Asia-Pacific region (particularly in power, energy, mining and utilities) are expected to continue to increase in 2013 as companies shift attention from Europe and the United States in search of faster growth rates, according to PriceWaterhouseCoopers in its 'Power & Renewables Deals: 2013 Outlook and 2012 Review'.

The Philippines is an attractive market for investors, due mainly to its fast economic growth, relative political stability, and rising domestic consumption. According to the National Statistical Coordination Board, the country’s gross domestic product grew by 6.8% in the fourth quarter of 2012, outpacing the rest of Southeast Asia and paving the way for annual GDP to post a broad-based growth rate of 6.6%. Household Final Consumption Expenditure (5.1% in the fourth quarter of 2012, up from 4.6%) together with increased government spending, the recovery of capital formation and the notable performance of external trade contributed to the healthy growth of the economy in 2012. Spending associated with the senatorial and local elections scheduled in mid-2013 is also expected to boost domestic consumption.

There is no centralized data available on merger and acquisition activity in the Philippines. However, based on general investment data compiled by investment promotion agencies (such as the Board of Investments) and the Bangko Sentral ng Pilipinas (BSP), the Philippines received approximately PhP397.2 billion in investment commitments from January to September 2012. The bulk of this amount was provided by domestic sources (PhP311.1 billion in committed investments, or approximately 78.3%), with foreign investors (the top three being Japan, the Netherlands and the United States) contributing approximately PhP86.19 billion or 21.7%. Investment commitments received during the same period were intended to finance activities in electricity, gas, steam and air conditioning supply (PhP151.9 billion, or 38.2%), followed by real estate activities (PhP90.5 billion, or 22.8%) and manufacturing (PhP80.2 billion, or 20.2%).

According to, foreign private equity firms have expressed strong interest in entering the Philippine M&A market. However, there is a significant level of competition in this area from local conglomerates such as the San Miguel group, the SM group and Metro Pacific Investments Corporation, which have holdings in retail, utilities, energy, infrastructure, banking and healthcare (among other ventures), and which are typically not hesitant to express an interest in acquiring key assets that become available for sale. Family-owned enterprises which need to raise capital may also prefer to retain control and list on the Philippine Stock Exchange, which has posted record highs in recent months.

Philippine banks are encouraged by the BSP to merge or consolidate, to further strengthen the banking sector. Towards this end, the BSP has recently announced the grant of temporary rediscounting lines to newly merged or consolidated banks, in addition to the general incentives or reliefs already granted to them.

Typical structuring issues

Acquisitions in the Philippines are typically structured as share purchases, as these are generally simpler to implement and more tax-efficient. In some instances, however, an asset acquisition may be preferred, where the primary considerations are the ability to cherry-pick attractive assets and a desire to avoid being saddled with the pre-existing obligations of the selling entity.

The acquisition of shares in a company listed on the Philippine Stock Exchange is subject only to a stock transaction tax of ½ of 1% of the selling price and exempt from documentary stamp tax (in contrast to a capital gains tax of 10% of the net gain realized by the seller and a documentary stamp tax of 0.375% of the par value of the shares sold, in the case of unlisted shares). On the other hand, an asset acquisition may attract corporate income tax (generally at the rate of 30% of the gain realized from the sale, subject to tax-treaty relief) and value-added tax (12% of the gross selling price), and other taxes, depending on the nature of the assets being sold.

Note, however, the potential need to comply with Philippine tender-offer rules if the target is a public company (such as one listed on the Philippine Stock Exchange) and the buyer acquires at least 35% of such company’s capital stock (in one or more transactions within 12 months). It may take at least two months to prepare for and complete the tender offer.

It is also worth noting that, unlike other jurisdictions such as the United States and Japan, the Philippines has not adopted “squeeze-out” regulations that would allow a company (or a new investor) to compel minority shareholders to sell their shares.

Recent developments on foreign ownership

As a general rule, there are no restrictions on the extent of foreign ownership of Philippine enterprises. However, the Constitution and local statutes impose ceilings on foreign equity in certain areas of economic activity, such as the ownership of land, operation of public utilities, and the exploration, development and utilization of natural resources. The Ninth Regular Foreign Investments Negative List (issued on 29 October 2012) enumerates some of the more important investment areas and activities that are reserved for Philippine citizens or entities a minimum amount of whose capital is owned by Philippine citizens.

In connection with this, the Philippine Supreme Court recently ruled that compliance with the Constitutional provision restricting the operation of public utilities to Philippine citizens or corporations at least 60% of whose capital is owned by such citizens, must be determined on the basis of the ownership of outstanding shares that are entitled to vote in the election of directors. According to the Supreme Court, other shares that are owned by Philippine citizens, but which are not entitled to vote for directors, must be disregarded, even if otherwise entitled to dividends and other rights. The Securities and Exchange Commission is in the process of drafting regulations to clarify and implement this requirement.

Foreign investments do not need to be registered with the BSP unless the foreign exchange, needed to service the repatriation of capital and the remittance of dividends and earnings, will be purchased from the Philippine banking system. Inward foreign investments may be in cash or in kind (such as machinery and equipment, raw materials, supplies, spare parts and other items). Foreign exchange funding for cash investments must be remitted into the Philippine banking system to be eligible for registration. In November 2011, however, the BSP relaxed the rules somewhat and approved an amendment to foreign exchange regulations that removed the previous requirement that such foreign exchange should be converted to pesos.


The economic performance of the Philippines in 2012 turned heads in the region, and the past few months have already seen a marked increase in interest from foreign investors. Hopefully, the current government will continue its efforts to improve the general business environment and spur further investment and development in the country.

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