CLARIFICATORY NOTE No.

18-001
Subject: Consolidation of Ownership

1. This Clarificatory Note is issued as a guide to the public on the coverage of compulsory
notification under Republic Act No. 10667, otherwise known as the Philippine
Competition Act (“PCA”) and its Implementing Rules and Regulations (“IRR”),
particularly Rule 4, Sections 2 and 3 on the compulsory notification requirement.

2. A merger or acquisition involving several entities controlled by the same natural

person(s) is not covered by compulsory notification if there is no change in control,
post-transaction.

Example:

2.1. The examples below are hypothetical and intended only to illustrate the Note outlined above.

2.2. Katrina Land Corporation, Katrina Energy Corporation, and Katrina Manufacturing Corporation
(collectively, “Katrina Corporations”) are corporations whose voting shares are held by business
partners Katherine, Kandy and Kathryn in equal proportions.

Katherine Kandy Kathryn

KATRINA CORPORATIONS
• Katrina Land Corporation
• Katrina Energy Corporation
• Katrina Manufacturing Corporation



Katherine, Kandy and Kathryn incorporated Katrina Holdings where each of them holds shares
likewise in equal proportions.

Katherine Kandy Kathryn

Katrina Holdings

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 Katherine, Kandy and Kathryn decided to sell their shares in the Katrina Corporations to Katrina
Holdings.

Katherine Kandy Kathryn

Katrina Holdings





KATRINA CORPORATIONS


The transfer of shares by Katherine, Kandy and Kathryn of their shares in the Katrina Corporations
to Katrina Holdings is not notifiable because:

(i) Katherine, Kandy and Kathryn own and control the shares of all three (3) Katrina
Corporations; and
(ii) The shares of Katrina Holdings are likewise owned and controlled by Katherine, Kandy
and Kathryn.


2.3. Cupid, Inc. (“Cupid”) owns 80% of the voting shares in Agape, Inc. (“Agape”), Eros, Inc. (“Eros”),
and Fileo, Inc. (“Fileo”). Cupid’s shares are held by business partners Anthony with 25%, Bryan
with 20%, Carlos with 20%, Dianne with 25%, and Eunice with 10%.

Anthony Bryan Carlos Dianne Eunice

25% 20% 20% 25% 10%


Cupid, Inc.




Agape, Inc. Eros, Inc. Fileo, Inc.

2


Cupid’s shareholders, together with X and Y incorporated Love Holdings, Inc. (“Love”). Cupid’s
shareholders collectively hold 70% of Love’s shares distributed as follows: Anthony with 20%,
Bryan with 15%, Carlos with 15%, Dianne with 20%, and Eunice with 14%. X and Y are mere
passive investors and are not related to Cupid or any of its shareholders.

Anthony Bryan Carlos Dianne Eunice

X 20% 15% 15% 20% 14% Y

8% 8%
Love Holdings, Inc.


Love entered into an agreement to merge with Agape, Eros, and Fileo, with Love as the surviving
entity.


Love Agape, Inc. Eros, Inc. Fileo, Inc.

Holdings, Inc.



The percentage ownership of each shareholder of Love shall not change post-merger.

Anthony Bryan Carlos Dianne Eunice

X 20% 15% 15% 20% 14% Y

8% 8%
Love Holdings, Inc.


The merger is not notifiable because:

(i) The same persons, i.e. Anthony, Bryan, Carlos, Dianne and Eunice, who own and control
Agape, Inc., Eros, Inc., and Fileo Inc. also own the majority of shares in and control Love
Holdings, Inc.
(ii) The other shareholders of Love, i.e. X and Y, are mere passive investors and do not have
sole or joint control over Love.

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 2.4. Ithaca Shipping Lines, Inc. (“Ithaca”) is a family-owned business where its voting shares are held
by Odysseus with 40%, Penelope with 30%, and Telemachus with 30%.

Odysseus Penelope Telemachus

40% 30% 30%


Ithaca Shipping Lines, Inc.


Odysseus, Penelope, and Telemachus together with Poseidon Shipping Inc. (“Poseidon”)
incorporated Cyclops Holdings, Inc. (“Cyclops”) where each of them holds 40%, 30%, 5%, and 25%
of the voting shares, respectively.

Odysseus Penelope Telemachus Poseidon Shipping, Inc.

40% 30% 5% 25%


Cyclops Holdings, Inc.


The Shareholders Agreement between Odysseus, Penelope, Telemachus and Poseidon reserves to
Poseidon the power to veto the business plan of the corporation and compensation of its officers.

Odysseus, Penelope, and Telemachus decided to sell their shares in Ithaca to Cyclops.

Odysseus Penelope Telemachus Poseidon Shipping, Inc.

40% 30% 5% 25%


Cyclops Holdings, Inc.





Ithaca Shipping Lines, Inc.


The acquisition by Cyclops of Odysseus’, Penelope’s, and Telemachus’ shares in Ithaca is notifiable
because while Odysseus, Penelope, and Telemachus apparently hold and control majority of the
shares in Cyclops and Ithaca, Poseidon will jointly control Ithaca together with Odysseus, Penelope
and Telemachus post-transaction by virtue of the powers vested in Poseidon by the Shareholders
Agreement (i.e. power to veto the business plan of the corporation and compensation of its
officers).

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3. Notwithstanding the foregoing, if there are other shareholders who own or control
shares in the holding company which will have the ability to control over the combined
entities after the consummation of the transaction, the transaction will be covered by
the compulsory notification requirement.

Example:

3.1. The example below is hypothetical and intended only to illustrate the Note outlined above.

3.2. Heart Manufacturing Corporation and Heart Canning Corporation (collectively, “Heart
Companies”) are companies carrying the Heart brand. The Heart Companies’ shares of stock are
held by five members of the Corazon Family in equal shares.

Corazon A Corazon B Corazon C Corazon D Corazon E

HEART COMPANIES
• Heart Manufacturing Corporation

• Heart Canning Corporation


The same members of the Corazon Family incorporated Hearty Corp. Limited, a holding company,
with each family member holding 10% of its shares.

Corazon Family Ysabella Corporation

A B C D E

50%
10% 10% 10% 10% 10%

Hearty Corp. Limited

To infuse capital and to bring new ideas to the newly formed holding company, Ysabella
Corporation (“Ysabella”) acquired half of the shares in Hearty Corp. Limited that are held by the
members of the Corazon Family. Post-acquisition, Ysabella and the Corazon Family shall jointly
control Hearty Corp. Limited.

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 Hearty Corp. Limited will then purchase the shares of the Corazon Family in the Heart Companies.

Corazon Family (A, B, C, D, and E) Ysabella Corporation

50% 50%


Hearty Corp. Limited




HEART COMPANIES


The transaction of purchasing shares from the Corazon Family by Hearty Corp. Limited is subject
to compulsory notification. The transaction resulted in an additional shareholder, Ysabella,
exercising control jointly with the original shareholders, the Corazon Family, over the companies
whose shares were purchased.


4. The foregoing shall not prevent the Commission from commencing a motu proprio
review of mergers and acquisitions under the IRR.

5. This Clarificatory Note is issued only for the purpose of giving clarity and guidance to
all concerned. The Commission may modify or revise this Note as it deems necessary.

Quezon City, Philippines.

21 September 2018