Takeover Tactics | Philippines | Global Public M&A Guide

6. Takeover Tactics

[Last updated: 1 January 2025, unless otherwise noted]

6.1 Inside information

A Philippine company has the obligation to immediately disclose to the public all "inside information" that relates to it, including all material changes in information that has already been disclosed to the public.

"Inside information" or "material non-public information" means information that (a) has not been generally disclosed to the public, and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable amount of time for the market to absorb the information; or (b) would be considered by a reasonable person as important under the circumstances in determining their course of action whether to buy, sell, or hold a security.

6.2 In the event of a public takeover bid

In the event of a (potential) public takeover bid, the Philippine takeover bid rules provide that an announcement can be made of a potential takeover bid even without the prior approval by the SEC. However, the SRC IRR requires the mandatory submission of the announcement of intent to make an offer to the SEC immediately after its publication.

6.3 Insider dealing and market abuse

The basic legal framework regarding insider dealing and market abuse under Philippine law is set forth in the SRC and SRC IRR. Under the SRC IRR, the following are considered as “insiders”: (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or a person controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives or gave them access to material information about the issuer or the security that is not generally available to the public; (d) a government employee, director, or officer of an exchange, clearing agency, and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or (e) any person who learns such information by a communication from any of the foregoing insiders.

Under Rule 27 the SRC IRR, the buying or selling of a security of an issuer by an insider thereof, while in possession of material non-public information with respect to the issuer or the security, is prohibited unless:

the insider proves that the information was not gained from such relationship, or
if the other party selling to or buying from the insider (or their agent) is identified, the insider proves (i) that the material non-public information was disclosed to the other party, or (ii) that the insider had reason to believe that the other party is also in possession of the same material non-public information.

An insider is further prohibited from communicating any material non-public information about an issuer or its securities to any person who, by virtue of the communication, becomes an insider, where the insider communicating the material non-public information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in possession of such material non- public information.

In the context of a potential or on-going tender offer, the following are likewise prohibited, and any violation thereof shall be considered as acts or instances of insider trading (or trading on the basis of material non-public information):

Any person who becomes aware of a potential tender offer before the tender offer has been publicly announced may not buy or sell, directly or indirectly, the securities of the target public company (including any securities convertible or exchangeable into such securities, or any options or rights in any of the foregoing) until the tender offer shall has been publicly announced.
Any person (other than the offeror) who is in possession of information relating to such tender offer, may not buy or sell the securities of the issuer that are sought or to be sought by such tender offer (including any securities convertible or exchangeable into such securities, or any options or rights in any of the foregoing) if such person knows or has reason to believe that the information is non-public and has been acquired, directly or indirectly, from the offeror, those acting on its behalf, the issuer of securities sought or to be sought by such tender offer, or any insider of such issuer.
The offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer (including any securities convertible or exchangeable into such securities, or any options or rights in any of the foregoing), and any insider of such issuer may not communicate material non-public information relating to the tender offer to any other person where such communication is likely to result in a violation of the rules and regulations on insider trading or trading on the basis of material non-public information.

In addition to the foregoing, the SRC likewise states that for the purpose of preventing the unfair use of information which may have been obtained by a beneficial owner, director, or officer by reason of their relationship to the issuer, any profit realized by them from any purchase and sale, or any sale and purchase, of any equity security of such issuer within any period of less than six (6) months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention of holding the security purchased or of not repurchasing the security sold for a period exceeding six (6) months.

6.4 Common anti-takeover defense mechanisms

The table below contains a summarized overview of the mechanisms that can be used by a target company as a defense against a takeover bid. These take into account the restrictions that apply to the board and general shareholders' meeting of the target company pending a takeover bid.

Mechanism	Assessment and considerations
1. Capital increase (poison pill) Capital increase by the board (authorized capital) without preferential subscription rights of the shareholders.	Requires a majority vote of the board of directors and vote of stockholders representing or owning at least two-thirds of the outstanding capital stock entitled to vote. The increase in capital stock requires prior approval of the SEC. Note, however, that the SEC has frowned upon poison pill provisions for defeating the rights of minority shareholders.
2. Share buyback Share buyback	Re-acquisition of shares of issuer or target of its own securities shall only be made if the issuer has unrestricted retained earnings in its books to cover the amount of shares to be purchased and is undertaken for a legitimate corporate purpose.
3. Sale of crown jewels An arrangement affecting the assets of, or creating a liability for, the company which is triggered by a change in control or the launch of a takeover bid.	Requires prior approval of the board of directors and the affirmative vote of the stockholders representing at least two-thirds of the outstanding capital of the Company
4. Frustrating actions Actions such as significant acquisitions, disposals, changes in indebtedness, etc.	Only transactions which have sufficiently progressed already (prior to receipt of notification of a takeover bid) may be implemented by the target's board. Other transactions require shareholders' approval after the takeover bid has been notified to the target.
5. Shareholders' agreements Shareholders undertake to (consult with a view to) vote their shares in accordance with terms agreed among them.	The shareholders could be considered as "acting in concert". If so, rules on mandatory offer apply to them. Assumes a stable shareholder base or reference shareholders.
6. Veto rights for certain shareholders Clauses providing for nomination rights by a reference shareholder or similar governance mechanisms.	Requires an express inclusion in the by-laws by a vote of stockholders owning or representing two-thirds of the outstanding capital stock entitled to vote. Requires prior approval of the SEC for the amendment to by-laws. Requires reference shareholder(s).
7. Limitations on share transfers Board approval or restriction clauses such as rights of first refusal in the articles of association or in agreements between shareholders.	Inclusion in the articles of association requires an approval by a majority of the board of directors and vote of stockholders representing or owning at least 2/3 of the outstanding capital stock entitled to vote. Pre-emptive rights or the right to subscribe to issuance of new shares in proportion to current shareholdings is expressly provided in the Corporation Code. Shareholders could be considered as "acting in concert". If so, see "Shareholders agreements" above.

Mechanism

Assessment and considerations

1. Capital increase (poison pill)

Capital increase by the board (authorized capital) without preferential subscription rights of the shareholders.

Requires a majority vote of the board of directors and vote of stockholders representing or owning at least two-thirds of the outstanding capital stock entitled to vote.
The increase in capital stock requires prior approval of the SEC.
Note, however, that the SEC has frowned upon poison pill provisions for defeating the rights of minority shareholders.

2. Share buyback

Share buyback

Re-acquisition of shares of issuer or target of its own securities shall only be made if the issuer has unrestricted retained earnings in its books to cover the amount of shares to be purchased and is undertaken for a legitimate corporate purpose.

3. Sale of crown jewels

An arrangement affecting the assets of, or creating a liability for, the company which is triggered by a change in control or the launch of a takeover bid.

Requires prior approval of the board of directors and the affirmative vote of the stockholders representing at least two-thirds of the outstanding capital of the Company

4. Frustrating actions

Actions such as significant acquisitions, disposals, changes in indebtedness, etc.

Only transactions which have sufficiently progressed already (prior to receipt of notification of a takeover bid) may be implemented by the target's board.
Other transactions require shareholders' approval after the takeover bid has been notified to the target.

5. Shareholders' agreements

Shareholders undertake to (consult with a view to) vote their shares in accordance with terms agreed among them.

The shareholders could be considered as "acting in concert". If so, rules on mandatory offer apply to them.
Assumes a stable shareholder base or reference shareholders.

6. Veto rights for certain shareholders

Clauses providing for nomination rights by a reference shareholder or similar governance mechanisms.

Requires an express inclusion in the by-laws by a vote of stockholders owning or representing two-thirds of the outstanding capital stock entitled to vote.
Requires prior approval of the SEC for the amendment to by-laws.
Requires reference shareholder(s).

7. Limitations on share transfers

Board approval or restriction clauses such as rights of first refusal in the articles of association or in agreements between shareholders.

Inclusion in the articles of association requires an approval by a majority of the board of directors and vote of stockholders representing or owning at least 2/3 of the outstanding capital stock entitled to vote.
Pre-emptive rights or the right to subscribe to issuance of new shares in proportion to current shareholdings is expressly provided in the Corporation Code. Shareholders could be considered as "acting in concert". If so, see "Shareholders agreements" above.

Notwithstanding the foregoing, the SRC IRR provides that during a tender offer (or before its commencement, if the target public company's board of directors has reason to believe that an offer might be imminent), the target public company may not:

issue any authorized but unissued shares;
issue or grant options in respect of any unissued shares;
create or issue, or permit the creation or issuance of, any securities carrying rights of conversion into, or subscription to, shares;
sell, dispose of or acquire, or agree to acquire, any asset whose value amounts to 5% or more of the total value of the assets prior to acquisition; or
enter into contracts that are not in the ordinary course of business; except, in each case, if the transaction is (1) pursuant to a contract previously entered, (2) entered with the approval of the target public company's shareholders in a general meeting, or (3) with the prior approval of the SEC.

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