SGV & Co.

December 13, 1985 SGV & Co. 6760 Ayala Ave. Makati, Metro Manila Attention : Mr . F . G . Tagao Gentlemen: This relates to your letter, dated December 4, 1985, requesting clarification on the last paragraph of our previous letter to you of October 23, 1985. Specifically, your query is: "Does it mean that the merger of VVI, a Philippine corporation, with Smith Kline & French Overseas Company, a foreign company, could be undertaken abroad and this would still be allowed in the Philippines provided that the merger is allowed under the laws of incorporation of Smith Kline & French Overseas Company and the dissolution of SK & F Victoria Valley, Inc. is made in accordance with Philippine laws? prcd It is reiterated herein that there seems to be no express provision in the Corporation Code nor in any other statute authorizing the merger of a foreign corporation a domestic corporation. Considering that corporations have no inherent power to merge with foreign corporations, in the absence of any statutory authorization on such corporate act, merger per se between said two kinds of corporations cannot be sustained by this Commission. However, in order to achieve a combination, it is not always necessary to resort to the statutory provisions on merger and consolidation. One obvious alternative of two corporations, is to have one of them sell all of its assets to the other in exchange for the latter's stock. If the acquiring corporation also assumes the payment of the corporation's liabilities and the latter shortens its terms, dissolves, liquidates and distributes the stock received to its stockholders in exchange for its own stock, as a liquidating distribution, the parties would end up in the same position they would have been under the statutory provisions on merger ." (Campos, Campos, the Corporation C od e, "Comments, Notes and Selected Cases," 1981 ed., p. 959). (Emphasis supplied) "When the intention of the parties is to effect a corporate combination, the consideration for the sale will be stocks of the purchasing corporation. Unless the creditors have agreed to the sale and have accepted the purchasing corporation as the new debtor, sufficient assets should be reserved to pay their claims. In this case, the selling corporation would normally dissolve by shortening its corporate term. Upon dissolution, it will have to liquidate by paying all creditors from the assets reserved! The stocks which it received in considerations of the sale will then be distributed proportionally to its stockholders as liquidation distribution. They thus become stockholders of the purchasing corporation." It has been held that where one company exchanges its shares for property of another company, at least where the shares are distributed among the stockholders of the selling company, a de facto merger is borne out. (15 Fletcher, Cyc. Corps.,1973 Rev. Vol.,Sec. 7025, p. 25) llcd Subject therefore to the foregoing observations, our answer to your query is in the affirmative. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman