Cornel B Juniarto and Stefanus Brian Audyanto of Hermawan Juniarto review the merger control regime in Indonesia
1. REGULATORY FRAMEWORK
1.1 What is the applicable legislation and who enforces it?
Law 5 of 1999 on Anti-Monopoly Practice and Unfair Business Competition sets out certain prohibitions of M&A transactions which may potentially result in monopoly or unfair business competition. This provision is further regulated under Government Regulation 57 of 2010 on Merger and Acquisition Transactions that may Result in Monopoly and/or Unfair Business Competition (GR 57/2010). Any business player who conducts M&A and meets the threshold as specified under GR 57/2010 must file a notification to the relevant authority. Failure to do so may cause the relevant authority to impose administrative fines and sanctions on the business. Further descriptions of this M&A notification is specified under the Commission for Supervision of Business Competition (Komisi Pengawas Persaingan Usaha or KPPU) guidelines.
The KPPU is the authority mandated by law to enforce the provisions of the Anti-Monopoly Law. The KPPU has the authority to impose sanctions for non-compliance with the Anti-Monopoly Law and to prohibit or require unwinding of transactions that have an illegal anti-competitive effect.
1.2 What types of mergers and joint ventures (JVs) are caught?
Business players are prohibited from conducting any M&A transaction that involves any kind of prohibited agreement, prohibited activity or abuse of a dominant position.
We understand that the establishment of a new JV company is subject to notification to the relevant authority in most European countries. This requirement does not apply to the establishment of a new JV company in Indonesia. However, the acquisition of shares of an existing JV company does not waive the obligation to file a notification to the KPPU.
2. FILING
2.1 What are the thresholds for notification, how clear are they, and are there circumstances in which the authorities may investigate a merger falling outside such thresholds?
The relevant parties to the transaction are required to notify the KPPU of an M&A transaction, if after completion of the transaction: the total asset value of the company is equal to or exceeds Rp2.5 trillion ($194 million); or the sales value of the company in the local market is equal to or exceeds Rp5 trillion. For banks, the asset threshold after completion of the transaction is higher (if it is equal to or exceeds Rp20 trillion).
The KPPU may not investigate any M&A transaction which falls outside such threshold.
2.2 Are there circumstances in which a foreign-to-foreign merger may require notification, and is a local effect required to give the authority jurisdiction?
In principle, the KPPU is authorised to control M&A transactions which affect competition in the Indonesian market. An M&A transaction conducted outside of Indonesia is not subject to filing if, first, the transaction is conducted outside Indonesia. Second, if the transaction does not directly affect the Indonesian market, provided that: all parties who conduct the transaction are conducting business activities in Indonesia, either directly or indirectly (through a subsidiary company); one party in the transaction is conducting business activities in Indonesia, whilst the other party is engaged in trade activities to the Indonesian market; one party in the transaction is conducting business activities in Indonesia, whilst the other party is not, but it has a sister company that conducts business activity in Indonesia. Third, if the transaction does not exceed the notification threshold. Finally, if the transaction is conducted between affiliated companies.
2.3 Is filing mandatory or voluntary and must closing be suspended pending clearance? Are there any sanctions for non-compliance, and are these applied in practice?
The Anti-Monopoly Law requires notifying the KPPU no later than 30 days after the effective date of the M&A transaction, so it is a post-closing condition. However the KPPU can prohibit or require unwinding of transactions that have an illegal anti-competitive effect.
The KPPU also entitles the parties to have a prior voluntary consultation, either verbally or in writing, to observe whether a proposed M&A transaction may trigger the occurrence of monopoly practice or unfair competition. The Anti-Monopoly Law does not specify the timing as to when the parties may conduct the voluntary consultation.
Failure to notify is subject to a fine of Rp1 billion per day after the deadline has lapsed, up to a maximum of Rp25 billion.
2.4 Who is responsible for filing and what, if any filing fee applies? What are the filing requirements and how onerous are these?
The filing must be submitted by: (i) the surviving company in a merger; (ii) the newly established company in a consolidation; or (iii) the acquiring party in an acquisition.
The applicant is required to complete an application form in writing and provide certain supporting documents to the KPPU, including the articles of association of the company, the company profile, audited financial statements for the last three years, the organisation structure of the company, documents evidencing that the M&A has been effected and the executive summary of the M&A. The process is time consuming and involves back and forth communication, interviews and meetings with the KPPU.
3. CLEARANCE
3.1 What is the standard timetable for clearance and there is a fast-track process? Can the authority extend or delay this process?
KPPU clearance will be issued at the latest 90 days after the receipt of a complete application.
If the relevant parties conduct a pre-closing consultation, the initial process takes up to 30 days. Within this period, the KPPU will issue its initial assessment to determine whether the proposed M&A transaction may result in monopoly practice or unfair business competition. If such transaction may potentially result in monopoly practice or unfair business competition, the KPPU may require a holistic assessment that would take another 60 days. In such case, the total process would take up to 90 days.
The prior voluntary consultation will not set aside the obligation to file for the KPPU clearance.
There is no fast-track process available. However, we have seen circumstances where the KPPU issued its clearance faster than the stipulated timeframe.
The regulation is silent in terms of potential delays to the 90-day assessment period. However, we have seen examples of the KPPU issuing clearance after the stipulated period.
3.2 What is the substantive test for clearance, and to what extent does the authority consider efficiencies arguments or non-competition factors such as industrial policy or the public interest in reaching its decision?
The KPPU will conduct its assessment on the following aspects:
Market concentration
The KPPU believes M&A transactions that cause high market concentration may potentially result in monopolies or unfair business competition. There are two methods used by the KPPU to assess market concentration, namely the Concentration Ratio (CRn) and the Herfindahl-Hirschman Index (HHI).
For M&A transactions, the KPPU usually uses the HHI. They are deemed to potentially cause unfair business competition if the HHI value is equal to or exceeds 1,800.
Entry barriers
M&A transactions may not result in difficulties or disadvantages for other business actors to enter the same market.
Potential non-competitive climate
M&A transactions should not create a market climate where other business players are not able to compete with other players with a dominant position in the same market.
Efficiency
In the event an M&A transaction is conducted for efficiency purpose, the KPPU will conduct a comparison assessment between the level of efficiency and adverse impact on market competitiveness. If the adverse impact on market competitiveness is greater than the level of efficiency, then the KPPU will not accept the efficiency argument.
Bankruptcy
If an M&A transaction is conducted to avoid bankruptcy, the KPPU will conduct a comparison assessment between the loss suffered by consumers if such business player exits the market (is bankrupt) and its impact on the consumer if the player continues to operate in the market.
3.3 Are remedies available to alleviate competition concerns? Please comment on the authority's approach to acceptance and implementation of remedies.
If the KPPU deems that a potential monopoly or unfair business competition is caused by the M&A transaction, it will issue its initial assessment report confirming this. In such cases, the KPPU will request the applicant to submit a remedies proposal within 14 days of the date of the initial report. If the proposal is accepted, the KPPU will issue its clearance.
Typically remedies accepted by the KPPU are structural, such as asset or share divestment, or behavioural such as intellectual property related measurement, cancellation of exclusive arrangements, and relinquishment of demand and supply barriers.
4. RIGHTS OF APPEAL
4.1 Please describe the parties' ability to appeal merger control decisions – how successful have such challenges been?
KPPU clearance is final. The Anti-Monopoly Law does not provide for appeals. If the KPPU clearance is given upon its acceptance of a remedies proposal, the KPPU has the authority to oversee the implementation of such remedies.
Failure to implement the remedies may trigger an investigation and hearing process by the KPPU. The KPPU will then issue its decision as to whether such transaction is in compliance with the Anti-Monopoly Law. Business players may appeal decisions to the district court or ultimately to the Supreme Court.
We note that several appeal petitions have been rejected by the relevant forum. However, there is at least one notable case – the acquisition of PT Alfamart by Carrefour Indonesia – where the district court accepted an appeal of the KPPU's decision.
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Cornel B Juniarto
Hermawan Juniarto
Jakarta
About the author
Cornel B Juniarto is a senior partner at Hermawan Juniarto (in association with Hogan Lovells) where he leads the dispute practice group. Before leading the dispute practice group, he was the lead partner of the corporate and capital markets practice group, where he regularly advises clients on general corporate law regulatory issues. He has worked on numerous corporate commercial transactions involving both domestic and international clients, including various M&A transactions.
Juniarto's experience includes dealing with bankruptcy, restructuring and insolvency issues. He is the author of various publications on foreign investment and corporate commercial matters published by Bloomberg, and is a contributor to the Indonesia Corporate Governance Manual published by the International Financial Corporateion (IFC) and the Indonesia Financial Services Authority. IFC and Hermawan Juniarto offer corporate governance advisory services to a wide range of companies across business sectors.
Stefanus Brian Audyanto
Hermawan Juniarto
Jakarta
About the author
Stefanus Brian Audyanto is a counsel in Hermawan Juniarto's (in association with Hogan Lovells) corporate and capital market practice group. He has extensive experience in representing foreign and domestic companies and state-owned enterprises in corporate commercial transactions, involving a variety of business transactions such as merger and acquisition, foreign direct investment and privatisation.
Audyanto also has extensive experience in labour and employment-related matters. He is the co-author of the Indonesia chapters in International Labor and Employment Laws (fourth edition) and Workplace Data Law and Litigation, both published by Bloomberg. He is also involved in the publication of the Indonesia Corporate Governance Manual published by the International Finance Corporation (IFC) and the Indonesia Financial Services Authority (OJK). He has been a regular speaker at various seminars and conferences.
Audyanto obtained his law degree from Pelita Harapan University and was awarded a Masters in business administration from the Holmes Institute, Australia in 2012.