Commercial and Taxation Laws › Business Organizations › Corporations (RA 11232) › Merger, Consolidation, and Acquisition
a. Concept
Merger
A union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business (Villanueva, 2018).
Definition
Merger refers to the joining of two (2) or more entities into an existing entity or to form a new entity. (Sec. 4[j])1
Acquisition refers to the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by:
- One (1) entity of the whole or part of another;
- Two (2) or more entities over another; or
- One (1) or more entities over one (1) or more entities. (Sec. 4[a])2
Distinction Between Mergers Under the PCA and Under the Revised Corporation Code
| Revised Corporation Code (RCC) | Philippine Competition Act |
| Two (2) or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. (Sec. 75, RCC)4 | Merger refers to the joining of two (2) or more entities into an existing entity or to form a new entity. [Sec. 4(j)]5 |
Based on the distinction above, the definitions reveal that a “merger” or “acquisition” as contemplated under the PCA does not strictly refer to a merger or consolidation under the RCC. Rather, it refers to any transaction that serves to transfer control of an economic entity to another, or the joining of two such entities into a single business entity. Thus, the definition under the RCC should not be applied to the PCA.
Note: Joint ventures, for purposes of the PCA, are covered under mergers. (Rule 2 [k] of IRR)6
Consolidation
The union of two or more existing corporations. A new corporation is created, and consolidating corporations are extinguished. (Philippine National Bank & National Sugar Development Corporation v. Andrada Electric & Engineering Company, G.R. No. 142936, 17 April 2002)3
| MERGER | CONSOLIDATION |
| A corporation ABSORBS another corporation and REMAINS IN EXISTENCE while the other is DISSOLVED | A NEW corporation is created, and constituent corporations are EXTINGUISHED. |
The power to merge or consolidate is not within the inherent powers of the corporation. Therefore, it must be expressly granted by law.
Merger or consolidation does not become effective by mere agreement of the constituent corporations. The approval of the SEC is required (Philippine National Bank & National Sugar Development Corporation v. Andrada Electric & Engineering Company)
Mere Acquisition/Transfer (3 Levels)
| Merger/ Consolidation | Transfer of Property |
| Loss of separate existence by the absorbed corporation (in mergers) or the constituent corporations (in consolidation) | No loss of separate existence |
Constituent and consolidated corporations
| Constituent Corporations | Consolidated Corporation |
| The corporations proposing to merge or consolidate are the constituent corporations (Bank of Commerce v. Radio Philippines Network, Inc., G.R. No. 195615, 21 April 2014)7 | The new corporation formed by the consolidation of two or more constituent corporations |
The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation
Authorities
- , Sec. 4
- Bank of Commerce v. Radio Philippines Network, Inc., G.R. No. 195615, 21 April 2014
- IRR of Philippine Competition Act, Sec. 2
- Philippine Competition Act, Sec. 4
- Philippine National Bank v. Andrada Electric, G.R. No. 142936, 17 April 2002
- Revised Corporation Code, Sec. 75