Mr. F. G. Tagao

October 23, 1985 Mr. F. G. Tagao SGV & Co. 6760 Ayala Avenue Makati, Metro Manila Sir : This refers to your letter, dated August 31, 1985, relative to the proposed merger of your client, Smith Kline & French Overseas Company, a foreign corporation licensed to do business in the Philippines, with Smith Kline & French Victoria Valley, Inc. (VVI),a domestic corporation wholly owned by Smith Kline & French International Company. cdlex Under the proposed merger, Smith Kline & French Overseas Company will be the surviving corporation, thereby absorbing Smith Kline & French Victoria Valley, Inc. (VVI).All the assets and liabilities of said absorbed domestic corporation will be transferred to and assumed by the surviving foreign corporation, and in consideration of the net assets of the absorbed corporation, the head office of the surviving corporation will issue corresponding number of shares to Smith Kline French International Company, the only stockholder of the absorbed corporation. Based on the facts above presented, and in line with Section 132 of the Corporation Code of the Philippines, it is your contention that your client can pursue such merger agreement. Hence, the present request for a favorable approval of said plan. The pertinent provision of the Corporation Code provides, thus: "SECTION 132. Merger or consolidation involving a foreign corporation licensed in the Philippines. One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided, That the requirements on merger or consolidation as provided in this Code, are followed: Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation, such foreign corporation shall within sixty (60) days after such merger or consolidation becomes effective, file with the Securities and Exchange Commission, and in proper cases with the appropriate government agency, a copy of the articles of merger or consolidation duly authenticated by the proper official or officials of the country or state under the laws of which such merger or consolidation was effected: Provided, however, That if the absorbed corporation is the foreign corporation doing business in the Philippines, the latter shall at the same time file a petition for withdrawal of its license in accordance with the Title." (Emphasis supplied) Corporations have no inherent power to merge with foreign corporations. (15 Fletcher, Cyc. Corps.,1973 Rev. Vol. Sec. 7182, p. 335 citing Doc Run Lead Co. v. Maynard, 283 No. 646, 223 SW 600).The steps and proceedings to bring about a consolidation or merger of domestic and foreign corporations are to a large extent fixed by statute and are governed by much the same rules as control where the proceedings relate solely to domestic corporations. (Fletcher, Supra.,sec. 7183, p. 338).In other words, there must be concurrent legislation in each state of constituent foreign and domestic corporations authorizing the merger for neither corporation can have authority to merge except by virtue of a law of the state creating it. prcd Section 132 of the Corporation Code of the Philippines allows the merger of foreign corporations with domestic corporations if there is such statutory authorization under Philippine laws , and if the same is allowed by the laws of incorporation of the foreign corporation, and provided further that the provisions of the Corporation Code relative to merger are observed. Paragraph 2 of the same section of the Code relates to a situation where the foreign corporation licensed to do business in the Philippines is a party to a merger in its home country or state as allowed by the law of its incorporation. Anent your request, there seems to be no express provision in the Corporation Code authorizing the merger of a foreign corporation with a domestic corporation. Neither is there any other statute which would allow such merger under our jurisdiction. Considering that corporations do not have the inherent power to merge with foreign corporations, in the absence of any statutory authorization on such corporate act, your plan of merger as presented cannot be given favorable due course by the Commission. However, should the proposed merger take place in foreign jurisdiction, the corresponding dissolution of the domestic corporation should be effected in accordance with law to safeguard the interest of third parties. Furthermore, as far as the foreign corporation is concerned, the provisions of paragraph 2, Section 132 of the Corporation Code as herein before quoted must be complied with. Please be advised accordingly. cdll Very truly yours, (SGD.) MANUEL G. ABELLO Chairman