Primary Holding

The Supreme Court affirmed that the Mandatory Tender Offer Rule under the Securities Regulation Code applies to indirect acquisitions of shares in a publicly listed company, protecting minority shareholders. The Securities and Exchange Commission (SEC) had jurisdiction to order Cemco Holdings to conduct a tender offer after it acquired indirect control of Union Cement Corporation (UCC) through purchasing shares in its holding company.

Background

Cemco Holdings acquired shares in Union Cement Holdings Corporation (UCHC), a non-listed company holding 60.51% of Union Cement Corporation (UCC), a publicly listed firm. This indirect acquisition increased Cemco’s beneficial ownership in UCC from 17.03% to 53%. National Life Insurance, a minority UCC shareholder, demanded Cemco comply with the Mandatory Tender Offer Rule. After Cemco refused, National Life filed a complaint with the SEC.

Facts

• 1. Cemco owned 9% of UCHC shares. By acquiring BCI’s (21.31%) and ACC’s (29.69%) UCHC shares, Cemco’s indirect ownership in UCC rose to 53%.
• 2. The SEC initially stated the tender offer rule did not apply but later reversed itself.
• 3. National Life Insurance, a UCC minority shareholder, demanded compliance with the rule.

Arguments of the Petitioners

• 1. The SEC lacks jurisdiction to order affirmative relief (tender offer).
• 2. The Mandatory Tender Offer Rule applies only to direct acquisitions, not indirect purchases of a holding company’s shares.
• 3. Retroactive application of the SEC’s reinterpretation prejudiced Cemco, which relied on the SEC’s initial approval.

Arguments of the Respondents

• 1. The SEC has authority under the Securities Regulation Code to enforce the tender offer rule.
• 2. Indirect acquisitions that grant control over a listed company trigger the rule to protect minority shareholders.
• 3. The SEC’s initial letter was advisory, not a binding ruling.

Issues

• 1. The SEC has authority under the Securities Regulation Code to enforce the tender offer rule.
• 2. Indirect acquisitions that grant control over a listed company trigger the rule to protect minority shareholders.
• 3. The SEC’s initial letter was advisory, not a binding ruling.

Ruling

• 1. Jurisdiction of the SEC: The SEC has adjudicative power under Section 5.1(n) of the Securities Regulation Code to enforce the tender offer rule. Cemco’s participation in SEC proceedings estopped it from challenging jurisdiction.
• 2. Application to Indirect Acquisitions: The rule covers any acquisition (direct or indirect) resulting in control of a listed company. Legislative intent emphasized protecting minority shareholders regardless of the acquisition method.
• 3. Retroactivity: The SEC’s initial letter was advisory, not a final ruling. Subsequent decisions correcting prior interpretations apply prospectively but bind the parties once finalized.

Doctrines

• 1. Administrative Agency Expertise: Courts defer to agency interpretations unless clearly erroneous.
• 2. Estoppel: A party cannot challenge jurisdiction after actively participating in proceedings.
• 3. Legislative Intent: The tender offer rule aims to prevent minority shareholder exploitation during control transfers.

Precedents Cited

• 1. Victorias Milling Co., Inc. v. Social Security Commission: Administrative rules have the force of law.
• 2. Serrano v. NLRC: New judicial doctrines apply prospectively but bind the immediate case.

Statutory and Constitutional Provisions

• 1. Section 19, RA 8799 (Securities Regulation Code): Mandates tender offers for acquisitions exceeding thresholds.
• 2. SEC Rule 19(2): Expands coverage to indirect acquisitions and sets thresholds (35% or 51% ownership).