PCC oks Chelsea acquisition of KGLI, but voids Trans-Asia takeover


The Philippine Competition Commission (PCC) has cleared Chelsea Logistics Holdings Corp’s (CLHC) acquisition of KGLI-NM Holdings, Inc., which controls the 2Go Group, Inc., but nullified CLHC’s acquisition of Trans-Asia Shipping Lines, Inc.

PCC in a statement said that with the Trans-Asia deal nullified, conditional clearance could then be given to CLHC’s acquisition of KGLI-NM Holdings, whose subsidiary—Negros Navigation Co., Inc.—owns transportation solutions company 2Go.

CLHC said it and the former owners of Trans-Asia, however, disagree with PCC’s decision nullifying CLHC’s takeover of Trans-Asia, calling the decision “unfair”.

The acquisition of shares in KGLI-NM is intended to consolidate CLHC’s majority ownership of KGLI-NM and gain a 52.98% stake in 2Go.

PCC, meanwhile, imposed a P22.8-million fine on the holding company for failing to notify the antitrust commission of its takeover of Trans-Asia in December 2016.

PCC’s initial investigation found that control of both 2Go and Trans-Asia by CLHC “would lead to a substantial lessening of competition affecting Roll-On/Roll-Off passenger shipping services (RoPax) in Cebu-Cagayan De Oro, Cagayan De Oro-Cebu, Cebu-Ozamis, Ozamis-Cebu, Cebu-Iligan and Iligan-Cebu legs; and cargo shipping services in the same areas plus the Cebu-Zamboanga leg.”

On these legs, 2Go and Trans-Asia overlap or compete directly with each other.

Once the Trans-Asia agreement was nullified, the overlaps with 2Go on the six legs of passenger shipping services and seven areas in cargo shipping services in Visayas and Mindanao found earlier in PCC Mergers and Acquisitions (M&A) Office’s Statements of Concerns were ruled out.

In two separate decisions dated June 28, PCC ordered Trans-Asia to inform the antitrust commission within 30 days from execution of merger or acquisition agreements involving any of its shares after the nullification order.

On the other hand, if CLHC’s parent entity Udenna Corporation or its subsidiaries or affiliates pursue the purchase or re-execute the voided Trans-Asia deal, the parties should—under the mandatory notification regime of the Philippine Competition Act—notify PCC of the transaction regardless of whether it is notifiable or not.

“Every M&A notification subjected to PCC review is evaluated in a fair and transparent manner with the public’s welfare as foremost concern. There are sanctions for violations, there are clearances when there are no competition concerns,” PCC chairman Arsenio M. Balisacan said.

CLHC is a wholly owned subsidiary of Udenna Corporation, which is owned by Davao-based businessman Dennis Uy. Through its subsidiaries, CLHC engages in maritime trade and shipping transport. On the other hand, Trans-Asia is primarily engaged in the domestic shipping of passengers and cargoes.

Last May, PCC also approved the purchase by Udenna of the entire outstanding capital stock of KGL Investment B.V., which has minor effective ownership in 2Go, after Udenna and KGLI-BV complied fully with the commission’s requirements.

Disagreement with Trans-Asia decision

CLHC in a statement said it and the former owners of Trans-Asia disagree with PCC’s decision nullifying CLHC’s takeover of Trans-Asia.

“Notification to the Commission is not required since Trans-Asia’s Net Asset Value (NAV) at the time of the sale was way below the Commission’s P1 billion threshold,” CLHC said.

It said that the basis for the P1 billion size of transaction threshold should be computed based on net assets. The holding company said Trans-Asia had debts on its books which brought down its NAV to not even half of PCC’s threshold.

CLHC also noted that PCC’s Guidelines on the Computation of Merger Notification, which states that the size of transaction test should be determined based on gross assets and not net assets, was issued only in December 2017, one year after CLHC’s acquisition of Trans-Asia.

CLHC and Trans-Asia’s sellers said they are convinced that PCC “should reconsider what the parties consider an unfair decision.”

The company recalled that PCC early this year raised its own size of transaction threshold to P2 billion citing as reason that transactions below this amount will not likely raise competition issues.

“The twin voiding of the transaction and the penalty of P22.8 million is likewise unduly harsh in light of the ambiguity in the Commission’s own rules,” CLHC said.

Parties to the voided transaction are currently weighing their options on whether to first file a Motion for Reconsideration with PCC or to go straight to the Court of Appeals for redress.

CLHC said that as the decision is not yet final, it has no impact to the business, operations and financial conditions of the company.