Merger as marriage and its commitments
by Atty. Amabelle C. Asuncion
May 1, 2018
In many ways, a merger is like marriage: two independent entities agree to, for better or for worse, become one, pool their resources and begin a profitable life of operating the business together. Just like a marriage, mergers are usually intended to last forever.
A merger is also meant to be a free and voluntary act of each party and is the result of the mutual consent of the parties. Before the passage of the Philippine Competition Act (PCA), parties are, for the most part, left alone to enter into such an agreement, save for regulatory requirements that could be likened to a marriage license. Following the PCA, however, merger parties undergo scrutiny, either before or after the fact, and risk disavowal of their transaction. The “fear of commitment” that hounds entities contemplating a merger is replaced by a newfound fear of merger review and of prohibition. The question lingers, what if they really want to “get married”?
A merger is also meant to be a free and voluntary act of each party and is the result of the mutual consent of the parties. Before the passage of the Philippine Competition Act (PCA), parties are, for the most part, left alone to enter into such an agreement, save for regulatory requirements, which could be likened to a marriage license. Following the PCA, however, merger parties undergo scrutiny, either before or after the fact, and risk disavowal of their transaction. The “fear of commitment” that hounds entities contemplating a merger is replaced by a newfound fear of merger review and of prohibition. The question lingers, what if they really want to “get married”?
This fear, however, tends to be overstated. While it is true that mergers are subject of review, this is not aimed at prohibiting a merger. The purpose of the review is to evaluate whether the merger could substantially lessen, restrict or prevent competition (SLC); the ultimate objective is to preserve competition in that market even after the merger. If the merger does not result in SLC, then it will be allowed. Still, even where it could potentially do so, the merger will not be prohibited altogether. It may still be allowed under certain situations: first, it may be allowed provided the merger parties comply with specific conditions or remedies; second, it may be allowed if the merger parties agree to make changes to the transaction or offer undertakings that would address the potential SLC.
In either situation, the merger may proceed, subject to conditions or remedies. The difference, however, is that in the first situation, these conditions or remedies are a result of a full merger review that finds the transaction would result in SLC and so the PCC imposes conditions. In the second situation, the conditions are a result of the merger parties’ own undertaking and commitments to address potential harms to the market, even before the review is completed and a definitive finding of SLC is made. In the marriage analogy, this is where the groom, upon sensing any concern, already addresses these early on so that the wedding can push through on the chosen date and he can secure a happy ending.
Offering commitments is usually optimal for the merging parties and the competition authority. Where a transaction raises concerns of potential SLC, offering commitments bears advantages for the parties as it makes the review faster and cheaper, avoids a determination of SLC or worse, a prohibition, and affords parties the opportunity to propose tailored solutions proportionate to the harm being addressed. On the part of the competition authority, commitments save on resources, solve the harm to the market faster and timelier, and presumably ensure compliance since the commitments are made by the merger parties themselves rather than imposed upon them.
Parties to a merger may offer commitments at any time during the review. This is true for both notified mergers as well as mergers subject of a motu proprio review. Commitments can come in the form of behavioral or structural remedies. Parties can offer either or a mixture; there is no fixed formula. For instance, in the Asahi Flat Glass merger, the acquiring party committed to set prices and provide services to customers on fair, reasonable and nondiscriminatory terms (FRAND), as well as sell products and services to glass distributors on terms no less favorable than those extended to similarly situated customers. The Philippine Competition Commission assessed the entire commitment package and found it to be an effective solution to the identified competition concerns. This resulted in a commitment decision, which is akin to a compromise judgment. It is based on the commitments offered by merger parties and makes such commitments legally binding without issuing a definitive finding of SLC.
The introduction of commitment decisions in competition practice is an attempt at a win-win solution wherein the merger parties can proceed with the transaction but at the same time address the potential harm/s to the market through the parties’ own undertakings. It is a solution accepted by competition authorities around the world and a track willingly taken by entities that only wish to merge but not to diminish or eliminate competition. Although commitments are, narrowly viewed, made by parties to enable them to proceed with the merger, commitments are actually, in a broader context, a commitment to a culture of competition. It is thus the kind of commitment that should not be feared but rather welcomed.
Commissioner Amabelle C. Asuncion was engaged in corporate and commercial practice and served as chief legal counsel of a top company and a corporate partner of a law firm. She was also previously involved in legislative, law and policy reform, advocacy and adjudication work. She has a Master of Laws degree (with distinction) in International Legal Studies from Georgetown University Law Center in Washington, D.C., and is admitted to the New York bar.
(Originally published on Business Mirror’s Competition Matters column May 1, 2018 here.)