Cemco Holdings, Inc. vs. National Life Insurance Company of The Philippines, Inc. GR No. 171815, August 7, 2007 Facts

CEMCO HOLDINGS, INC. vs.
NATIONAL LIFE INSURANCE COMPANY

OF THE PHILIPPINES, INC.
GR No. 171815, August 7, 2007
FACTS:
Union Cement Corporation (UCC), a publicly-listed company, has two
principal stockholders – UCHC, a non-listed company, with shares amounting
to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s stocks
were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the
other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed
the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had
passed resolutions to sell to Cemco BCI’sstocks in UCHC equivalent to
21.31% and ACC’s stocks in UCHC equivalent to 29.69%.
As a consequence of this disclosure, the PSE inquired as to whether

the Tender Offer Rule under Rule 19 of the Implementing Rules of the
Securities Regulation Code is not applicable to the purchase by petitioner of
the majority of shares of UCC. The SEC en banc had resolved that
the Cemco transaction was not covered by the tender offer rule. Feeling
aggrieved by the transaction, respondent National Life Insurance Company
of the Philippines, Inc., a minority stockholder of UCC, sent a letter
toCemco demanding the latter to comply with the rule on mandatory tender
offer. Cemco, however, refused.
Respondent National Life Insurance Company of the Philippines, Inc.

filed a complaint with the SEC asking it to reverse its 27 July
2004 Resolution and to declare the purchase agreement of Cemco void and
praying that the mandatory tender offer rule be applied to its UCC shares.
The SEC ruled in favor of the respondent by reversing and setting

aside its 27 July 2004 Resolution and directed petitioner Cemco to make a
tender offer for UCC shares to respondent and other holders of UCC shares
similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of
the Securities Regulation Code.
On petition to the Court of Appeals, the CA rendered a decision

affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to
render the questioned decision and, in any event, Cemcowas barred
by estoppel from questioning the SEC’s jurisdiction. It, likewise, held that
the tender offer requirement under the Securities Regulation Code and its
Implementing Rules applies to Cemco’s purchase of UCHC stocks. Cemco’s
motion for reconsideration was likewise denied.
ISSUES:
1. Whether or not the SEC has jurisdiction over respondent’s
complaint and to require Cemco to make a tender offer for
respondent’s UCC shares.
2. Whether or not the rule on mandatory tender offer applies to the

indirect acquisition of shares in a listed company, in this case,
the indirect acquisition by Cemco of 36% of UCC, a publicly-
listed company, through its purchase of the shares in UCHC, a
non-listed company.
HELD:
1. YES. In taking cognizance of respondent’s complaint against petitioner
and eventually rendering a judgment which ordered the latter to make
a tender offer, the SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit:
“13. Violation

If there shall be violation of this Rule by pursuing a
purchase of equity shares of a public company at threshold
amounts without the required tender offer, the Commission,
upon complaint, may nullify the said acquisition and direct the
holding of a tender offer. This shall be without prejudice to the
imposition of other sanctions under the Code.”

The foregoing rule emanates from the SEC’s power and authority
to regulate, investigate or supervise the activities of persons to
ensure compliance with the Securities Regulation Code, more
specifically the provision on mandatory tender offer under
Section 19 thereof. Moreover, petitioner is barred from
questioning the jurisdiction of the SEC. It must be pointed out
that petitioner had participated in all the proceedings before the
SEC and had prayed for affirmative relief.
2. YES. Tender offer is a publicly announced intention by a person

acting alone or in concert with other persons to acquire equity
securities of a public company. [12] A public company is defined
as a corporation which is listed on an exchange, or a corporation
with assets exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100
shares of such company.[13] Stated differently, a tender offer is
an offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the terms
specified in the offer.[14] Tender offer is in place to protect
minority shareholders against any scheme that dilutes the share
value of their investments. It gives the minority shareholders
the chance to exit the company under reasonable terms, giving
them the opportunity to sell their shares at the same price as
those of the majority shareholders.
The SEC and the Court of Appeals ruled that the indirect acquisition by
petitioner of 36% of UCC shares through the acquisition of the non-
listed UCHC shares is covered by the mandatory tender offer rule.
The legislative intent of Section 19 of the Code is to regulate activities

relating to acquisition of control of the listed company and for the
purpose of protecting the minority stockholders of a listed
corporation. Whatever may be the method by which control of a
public company is obtained, either through the direct purchase of its
stocks or through an indirect means, mandatory tender offer
applies. As appropriately held by the Court of Appeals:
“What is decisive is the determination of the power of
control. The legislative intent behind the tender offer rule
makes clear that the type of activity intended to be
regulated is the acquisition of control of the listed
company through the purchase of shares. Control may
[be] effected through a direct and indirect acquisition of
stock, and when this takes place, irrespective of the
means, a tender offer must occur. The bottomline of the
law is to give the shareholder of the listed company the
opportunity to decide whether or not to sell in connection
with a transfer of control.xxx”

Cemco Holdings, Inc. vs. National Life Insurance Company of The Philippines, Inc. GR No. 171815, August 7, 2007 Facts

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Cemco Holdings, Inc. vs. National Life Insurance Company of The Philippines, Inc. GR No. 171815, August 7, 2007 Facts

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CEMCO HOLDINGS, INC. vs.

NATIONAL LIFE INSURANCE COMPANY

As a consequence of this disclosure, the PSE inquired as to whether

Respondent National Life Insurance Company of the Philippines, Inc.

The SEC ruled in favor of the respondent by reversing and setting

On petition to the Court of Appeals, the CA rendered a decision

2. Whether or not the rule on mandatory tender offer applies to the

2. YES. Tender offer is a publicly announced intention by a person

The legislative intent of Section 19 of the Code is to regulate activities

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