Well-capitalized firms looking to expand are currently faced with an aberrant opportunity to make acquisitions and consolidate power. As the pandemic continues to take its toll on the economy, weaker business actors in Indonesia receiving handouts via government support schemes or dipping into their cash reserves could be fast approaching a state of deeper financial distress, leaving them open for takeovers.
Omnibus Law: Merger & Acquisition Regulations In Indonesia
Due to its large population, economic growth, and untapped potential, the vast majority of Merger & Acquisition (M&A) deals in Indonesia are led by foreign investors. The most recent and prolific M&A deals in Indonesia include Singapore internet giant – SEA’s acquisition of Indonesian Bank BKE and the much talked about Go Jek and Tokopedia merger.
Indonesia’s Positive Investment List
To further improve Indonesia’s investment climate, the Indonesian government enacted the Omnibus Law in October 2020. As part of the Omnibus Law, it introduced a ‘Positive Investment List” which relaxes foreign ownership limitations from a large swathe of sectors. Nonetheless, foreign investors looking to merge or acquire Indonesian companies should still observe the foreign ownership composition of these sectors.
To improve the investment climate, the Omnibus Law amends 73 laws, consisting of 15 chapters and 174 articles. Business actors can expect both large and small (but important) changes in the way business will be done in Indonesia. Firms entering Indonesia should exercise caution and due diligence, to achieve their goals and maximum shareholder wealth from the deal.
Common M&A Methods In Indonesia
Foreign investors should also note the several laws that regulate M&A activities in Indonesia. The general M&A requirements, provisions, and procedures can be referred to as Indonesia’s “Company Law” (Law No 40 of 2007). The ‘Company Law’ outlines the four types of M&A transactions found in Indonesia;
- Merger: All assets and liabilities are legally transferred to the acquired entity. The remaining firms are legally liquidated.
- Consolidation: All entities are legally liquidated, all assets and liabilities are legally transferred to a newly formed entity
- Share or Asset Acquisition: A legal entity acquires shares of assets in a company resulting in a change of control in the acquired entity. There are strict proceeds under the Indonesian Company Law such as Public acquisition announcement, Sale and purchase agreement, and Deed of transfer, to name a few.
- In Indonesia, VC transactions in the form of direct investment will be treated as an acquisition under the Indonesian Company Law.
Overview: Mergers & Acquisitions Process In Indonesia
Stage 1: Before Closing the Deal
- Before signing the Conditional Share Purchase Agreement (CSPA), the involved parties may be required to consult with the Business Competition Supervisory Board also known as Komisi Pengawas Persaingan Usaha (KPPU).
- Consultation with KPPU is to determine if the M&A deal requires reporting to KPPU. During this time, both seller and buyer are required to make an arrangement for corporate authorizations, which may include authorizations from individual shareholders.
| Indonesia Competition Law Business competition in Indonesia is regulated by the Indonesian Competition Law and administered by the KPPU. A written notification of M&A(s) to KPPU is mandatory, if the surviving business entity’s asset value exceeds IDR2,500,000,000,000.00 (two trillion five hundred billion rupiah) or, exceeds a sales value of IDR5,000,000,000,000.00 (five trillion rupiah). Businesses in the banking sector, however, have a lower threshold. Late notifications filed will incur a penalty of IDR 1 billion each day. The prior cap of IDR 25 billion is eliminated as part of the Omnibus Law, and therefore makes it crucial for investors to decide the effective date of the transaction to prevent unknown penalties. |
- Both parties shall then proceed with signing the CSPA that covers commercial arrangements, such as permission to use trademarks and other conditions to be met prior to closing the acquisition deal.
- Once the deal is signed, the seller, the buyer, and its board of directors of the companies will need to make an announcement to the public. The announcement of the proposed acquisition must be published in a daily newspaper that is circulated nationally and in the form of a written notification to its employees. The announcement needs to be made no later than 30 days before the general meeting of shareholders (GMS) takes place.
During this time, Employees are also entitled to choose whether to continue working for the surviving company, In cases where an employee chooses to resign, severance payment may be provided based on the employment agreement.
| Omnibus Law Labor Regulations Government Regulation Number 35 Year 2021 (GR 35) concerning Temporary Work Agreement, Outsourcing, Working and Resting Hour, and Employment Termination, is effective as of 2 February 2021 Below is an overview of reasons for termination and its respective severance package. |
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| Employee is unwilling to continue employment or vice versa due to the following: | Severance payment | Long Service | Compensation Rights |
| Merger & Acquisition or Spinoff | 1 Time | 1 Time | Eligible |
| Company Takeover | |||
| Company closure (not due to loss) | |||
| Debt suspension (not due to loss) | |||
| Company takeover (resulting in a change in scope of work) | 0.5 time | ||
| Company closing (due to loss for 2 consecutive years) | |||
| Force Majeure | |||
| Debt suspension (not due to loss) | |||
| Bankruptcy | |||
| Force Majeure (which did not cause company closure) | 0.75 times | ||
- During this same period, Creditors can also file for objections. If there are no objections, companies involved in the deal can continue with signing the shareholder’s resolutions over the next 30 days, following the newspaper announcement. In general, the resolutions consist of information detailing the transfer of shares and the new shareholder’s composition, BOD and BOC changes (if applicable), and changes to Articles of Association, among others.
- The application is then submitted to the Investment Coordinating Board also known as Badan Koordinasi Penanaman Modal (BKPM). Documents to be submitted along with the application include a power of attorney, prior licenses, and an application form.
- Finally, the pre-closing stage ends with restating the above-mentioned resolutions in the form of a notarial deed.
Stage 2: Closing the Deal
Each event that takes place during the pre-closing stage may require certain documents. During this stage, the following steps are to be undertaken:
- Following the approval from the BKPM, both seller and buyer will need to sign the Deed of Share Transfer, including the cancellation of the old share and collective share certificates (if applicable). Documents to be prepared, include Share Sale and Purchase Agreement and Share Certificate.
- To complete the closing stage, it is necessary to record the transfer of the shares in the register of the company and/or special share register. Or, you can also issue a new share certificate.
Stage 3: After Closing the Deal
This is the final stage of your direct acquisition and your final steps in a successful acquisition.
- Submit the receipt of Notification to the Ministry of Law and Human Rights (MOLHR) of Indonesia within 30 days following the signing of the Deed of Share Transfer.
- Next, a second public announcement on a national newspaper is required again, publishing the results of the acquisition. The window period to do is 30 days following the approval from the MOLHR.
- If applicable, you need to report the result of the acquisition to the KPPU. As mentioned, each acquisition case may be different. It is recommended to seek professional advice.
This stage will be complete when registration is carried out at the Ministry of Trade’s Company Registry. This step is required to amend the necessary company data.
Where To Next – Mergers & Acquisitions Services In Indonesia
As the global economy recovers from the Covid-19 pandemic, we will see a wave of M&A activity. Well-prepared firms with the right advice, can avoid these common traps and navigate Indonesia’s business landscape with ease.
If you would like seasoned and trusted advice in Indonesia, Cekindo has a comprehensive service covering valuation, negotiation, and completion, as well as financial audits and legal due diligence.
Reach out to our consulting team by completing the form below.
