Mercantile Law

CEMCO HOLDINGS, INC. v. NLIC NATIONAL LIFE INSURANCE COMPANY G.R. No. 171815 August 7, 2007 Tender Offer Rule, Securities Regulation Code


Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders – UCHC and petitioner Cemco.

Majority of UCHC’s stocks were owned by BCI and ACC. 

Cemco, on the other hand, owned 9% of UCHC stocks.

BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to 29.69%.

As a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC, petitioner’s total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC.

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 SRC 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.

Respondent NLIC, a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.

A Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as buyer.

The transaction was later consummated and closed.

NLIC filed a complaint with the SEC asking it to reverse its 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, reversed its previous Resolution, and directed petitioner Cemco to make a tender offer for UCC shares to respondent and other holders of UCC shares.

Petitioner challenged the SEC’s jurisdiction to take cognizance of respondent’s complaint and its authority to require Cemco to make a tender offer for UCC shares, and argued that the tender offer rule does not apply.

The CA affirmed the ruling of the SEC. It held that the tender offer requirement applies to Cemco’s purchase of UCHC stocks.

Cemco’s MR was denied.

Hence, the instant petition.


  1. Whether or not the SEC has jurisdiction over respondent’s complaint.
  2. Whether or not Cemco is required to make a tender offer for respondent’s UCC shares.



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 IRR of the SRC, 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 SRC, more specifically the provision on mandatory tender offer under Section 19 thereof.

Another provision of the statute, which provides the basis of Rule 19(13) of the Amended IRR of the SRC, is Section 5.1(n), viz:

[T]he Commission shall have, among others, the following powers and functions:

x x x x

(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance of the administrative duties entrusted to it. 

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. 

It was only when the case was before the CA and after the SEC rendered an unfavorable judgment against it that petitioner challenged the SEC’s competence.


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. 

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. 

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.

Under the SRC, and its implementing rules, a mandatory tender offer is required (i) when at least 35% of the outstanding shares of a public company is to be acquired in one transaction or a series of transaction during 12-month period, or (ii) even if any acquisition is less than 35% threshold but the result thereof is the ownership of more than 51% of the total outstanding shares of a public company.

The SEC and the CA 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 SEC and the CA accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or “any type of acquisition.”

The legislative intent of Sec. 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. 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. x x x.

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