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NOTIFICATION OF MERGER, CONSOLIDATION AND ACQUISITION

03 Jun

ISSUES

Under this article, I will try to elaborate limitations, procedures and sanction of pre-notification merger, consolidation and acquisition to Business Competition Supervisory Commission (the “KPPU“) as regulated under monopolistic practices and unfair business competition regulations.

RELEVANT REGULATION

  1. Law No. 40 Year 2007 on Limited Liabilities Companies (“Law No. 40/2007“);
  2. Law No. 5/1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition (“Law No.5/1999“);
  3. Government Regulation No. 57/2010 on the Merger or Consolidation of Business Entities and the Acquisition of Company Shares that could result in Monopolistic Practices and/or Unfair Business Competition (“GR No.57/2010″);
  4. Commission Regulation No. 10/2010 on the Merger Notification Form, Corporate Consolidation, and Acquisition of Company Shares (“CR 10/2010“);
  5. Commission Regulation No. 11/2010 on Consulting Business Entity Merger or Consolidation and Acquisition of Shares (“CR 11/2010“);
  6. Commission Regulation No. 13/2010 on Guidelines on Corporate Merger or Consolidation and Acquisition of Shares of the Company May Result in the Occurrence of Monopolistic Practices and Unfair Business Competition (“CR 13/2010“).

INTRODUCTION

According to article 126 (1) of Law No. 40/2007, the legal action of merger, consolidation or acquisition (M&A) must be made with due consideration of the best interest of, among others, the public and fair business competition, since it will influence competition among business actors in the relevant market and affect consumers and the community. Therefore, various kinds of monopoly and/or unfair business competition which are detrimental to the public must be avoided in the merger, consolidation or acquisition.

“A merger is a legal act performed by one company when it merges with one or more existing companies with the result that the assets and liabilities of the merging company are transferred by law to the absorbing company, and the merging company’s status as a legal entity is subsequently extinguished by law (article 1(9) of the Law No. 40/2007);

Consolidation is a legal act performed by two or more companies when they establish a new company which acquires their assets and liabilities. The statuses of the consolidating companies as legal entities are subsequently extinguished by law. With this establishment of the new company, the consolidating companies’ statuses as legal entities are similarly extinguished by law (Article 1(10) of the Law No. 40/2007);

Acquisition is a legal act performed by a legal entity or an individual person when the acquiring of shares by it/him in a company results in the transfer of control in that company (article 111 (1) of Law No. 40/2007)”

Law No. 5/1999 which regulate the business competition in Indonesia prohibits the acquisition of shares by the business actor if such action may result in the occurrence of monopolistic practices and/or unfair business competition (article 28 (2) of Law No. 5/1999). After waiting for more than 10 (ten) years, Indonesia enacted GR No. 57/2010 on 20 July 2010. This regulation is the implementation regulation of articles 28 and 29 of Law No. 5/1999. In article 28 (3) of this Law No.5/1999, stated that “further provisions regarding the prohibition of mergers or consolidations of business entities as referred to in paragraph 1 and provisions concerning the acquisitions of shares in other companies as referred to in paragraph 2 shall be stipulated in a government regulation” and in paragraph 2 of article 29 of this law, it is clearly stated that “provisions regarding the determination of assets value and or sales value as well as the procedure of notification as referred to in paragraph 1 shall be stipulated in the government regulation“.

LIMITATION VALUE

the requirements of the notification’s service upon the KPPU shall be conducted if following requirements has been fulfilled:

  1. The value of enterprise’s assets resulting from the merger or consolidation or acquisition exceeds Rp.2.500.000.000.000 (two trillion five hundred billion rupiahs); or
  2. The value of sales (turnover) of the business entities resulting from the merger or consolidation or acquisition exceeds Rp.5.000.000.000.000 (five trillion rupiahs). Specifically in the banking sector, the business actor is required to make a notification to the KPPU if the value of enterprise’s assets resulting from the merger or consolidation or acquisition exceeds Rp.20.000.000.000.000 (twenty trillion rupiahs). In the event that the merger is between a bank and a non-bank, the value limits prevailing are the limit values in the banking sector;

Under monopolistic practices and unfair business competition regulations, it is to be noted that mergers among affiliated companies do not meet the criteria for merger since they do not change the existing market structure and competition conditions.

NOTIFICATION PERIOD

GR No.57/2010 has adopted the mandatory post-merger and acquisition notification to the KPPU of certain sized mergers and acquisitions within 30 days as of the date of the merger or acquisition has legally taken place. In the event that the business actor fails to provide such notification to the KPPU, the business actor shall be imposed an administrative fine of Rp.1.000.000.000 (one million Rupiah) for each day of delay, with maximum total fine Rp.25.000.000.000 (twenty five milion Rupiah). As set forth in article 5 (1) and (2) of GR No. 57/2010 (mention above), not all acquisition shall be notified to KPPU, but any acquisition that meets more than the following size-related criteria will need to be notified to the KPPU: (1) the parties’ combined total asset value Rp.2.500.000.000.000 (two and a half trillion Rupiah), and/or (2) the parties combined total sales value (turnover) Rp.5.000.000.000.000.000 (five trillion Rupiah).

Within 90 (nineteen) days since receipt of notification, the KPPU produces its opinion: whether or not there is a presumption of monopolistic or unfair business competition practices or the KPPU may produce the opinion that there is “conditional “no-presumption of monopolistic or unfair business competition practices, for example, so long as a number of suggestions or guiding notes from the KPPU attached to the opinion are duly observed by the business actor in question. The KPPU will monitors & evaluates implementation of the suggestions or guiding notes.

It is stated that business actors shall make the notification no later than 30 (thirty) days from the date the merger becomes judicially effective. Where the business entity involved is the formation of a limited liability company, the date the merger becomes judicially effective is in accordance with the provisions of article 133 of Law No. 40/2007. This date is decided upon the occurrence of the following

  1. Ministerial approval of the article of association’s amendment in the event of a merger is obtained;
  2. Notification is received by the Minister of the amendment of the articles of association as referred to in Article 21(3) of Law No. 40/2007, but without the actual amendment accompanying this notification; and
  3. Legalization of the minister on the deed of the company in the event of consolidation. In the event that the merged entity does not take the form of a limited liability company, then the notification is to be made no later than 30 days since the date of signing of the merger agreement by the parties. The Commission will conduct an assessment of the merged company to give an opinion on whether or not any alleged monopolistic practice and/or unfair business competition exists.

NOTIFICATION AND ASSESSMENT

Based on KPPU Guidelines for Implementation regarding merger, consolidation and acquisition, it will be divided into 2 (two) assessment, which is initial assessment: focused on market concentration (simulation of the change of market concentration level before and after the acquisition, using the Hirschman-Herfindahl Index/HHI and Comprehensive assessment: focused on market entry barriers, anti-competition behavior, efficiency, and potential to cause bankruptcy. Also base on this guideline, KPPU open a chance for voluntary pre-notification of the concerning M&A, namely “consultation”. However, KPPU’s Opinion given by KPPU under such consultation is NOT to be construed as the KPPU’s approval or refusal of the plan, NOR

The evaluation by the KPPU for the concerning the merger, consolidation and acquisition plan will be done in Initial evaluation and comprehensive evaluation. The result of the consultation is non-binding in nature (article 7 of KPPU Regulation No. 11/2010), but the KPPU has a commitment of conducting assessment only once, insofar as there is no material change from the data conveyed by the business actor in question. However, the business actor in question remains having the obligation of making post-notification to the KPPU. Deciding to consult is a good decision, but be careful: the KPPU will know your company’s commercially sensitive information and your market position.

Following are the procedures of notification shall be conducted by the company:

  1. Business actors shall notify the Commission in writing within a maximum period of 30 days working days.
  2. Such notification shall be made in writing by the business actor created by the merger, consolidation of business entities or acquisition of shares, by filling out a form M1 for the merger of business entities, form K1 for the consolidation of business entities, and form A1 for the takeover of the company’s shares respectively.
  3. The notification form must be accompanied by the required documents mentioned above as well as other documents deemed necessary by the Commission.
  4. The Commission will issue a notification receipt and study the completeness of the required forms and documents.
  5. The Commission reserves the right to request additional documents from the business actor in the event it deems it necessary to conduct an assessment.

SANCTION

With regard to the violation of article 28 of Law No.5/1999, the KPPU may decide sanctions in the form of administrative sanctions against companies that have violated against the law (Article 47 paragraph (1) of Law No. 5/1999). The KPPU can also order the cancellation of M&A (Art. 47 paragraph (2) letter (e), and the KPPU is furthermore allowed to order compensation or levy fines (Art. 47 paragraph (2) letter (f) and (g)) in connection with Art. 48 paragraph (1) (criminal penalties: Rp.25 billion – 100 billion or imprisonment as substitute of fine at most 6 months) as with the additional criminal penalties in Art. 49 paragraph (1) of Law No. 5/1999 (revocation of business license, prohibition for the business actor to hold position as director or commissioner for period 2 – 5 years, or cessation of certain activities or actions that cause losses to other party).

Deliver by,

AK

 

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