Freddy Karyadi and Ayik Candrawulan Gunadi of Ali Budiardjo Nugroho Reksodiputro assess the regulatory landscape for mergers and acquisitions in Indonesia


1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?

M&A is governed by: Law 40 of 2007 on Limited Liability Companies (Company Law), and the implementing regulation of the old company law, namely Government Regulation 27 of 1998 on Mergers, Consolidations and Acquisitions of Limited Liability Companies; Law 25 of 2007 on Investment and its implementation under President Regulation 39 of 2014 (Negative List); Law 5 of 1999 on the Prohibition of Monopoly and Unfair Business Competition, and the implementing regulations (Government Regulation 57 of 2010; the Business Competition Supervisory Commission – Komisi Pengawas Persaingan Usaha or KPPU – Regulation 11 of 2010; and KPPU Regulation 13 of 2010 as lastly amended by KPPU Regulation 3 of 2012).

Specifically for public companies, there is Law 8 of 1995 on capital markets and several regulations (such as Bapepam Rule IX.F.1, IX.G.1 and IX.H.1) issued by the Capital Market and Financial Institution Supervisory Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan or Bapepam-LK), with the Financial Services Authority (Otoritas Jasa Keuangan or OJK) as the regulatory body.

There are also certain sectorial regulations stipulating provisions relating to M&A.

1.2 How, and by what measures, are takeover regulations (or equivalent) enforced?

Other than the authority's supervision, takeover regulations are principally enforced by a self-assessment system. This means that business parties should comply with takeover regulations by reporting M&A transactions to the KPPU to be assessed on the possibility unfair business competition. For a public company, if there is a mandatory tender offer (MTO), the bidder should submit an announcement draft of an MTO information disclosure and its supporting documents to the OJK, as stipulated under Rule IX.H.1.


2.1 What are the basic structures for friendly and hostile acquisitions?

Indonesian laws and regulations do not specifically stipulate the structure of friendly and hostile acquisitions save for the procedure of acquisition under the Company Law. Therefore, if the target company does not wish to be acquired, it will be considered a hostile acquisition, although it is not common in Indonesia.

2.2 What determines the choice of structure, including in the case of a cross-border deal?

The regulation is silent on the structure; please refer to section 2.1.

2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?

The acquisition of a public company generally takes at least six months.

2.4 Are there restrictions on the price offered or its form (cash or shares)?

Offers are generally cash; payment by shares is still relatively uncommon. The price of the shares is subject to further negotiation. However, in terms of the acquisition of a public company, there are regulations regarding the MTO price as stipulated under Bapepam Rule IX.H.1, which applies strict criteria for an MTO price depending on whether the shares are listed or have been recently traded (there are several different conditions which affect the stipulation of the MTO price).

2.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?

It depends on the provisions of the target company's articles of association (AoA). Principally, if the bidder acquires majority shares of the target company, the shares percentage of the minority shareholder will be diluted.

2.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for select shareholders, and partial acquisitions, such as mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?

First right of refusal: under the Company Law, if the AoA of the target requires a selling shareholder to offer its shares to the shareholders with certain classes or the other shareholders within 30 days from the date of the offer, and the shareholders do not have any intention to purchase the offered shares, the selling shareholder may offer and sell their shares to a third party.

Pre-emptive rights: under the Company Law, all shares issued for capital increase must be offered to all shareholders in proportion to the shareholding within the same class of shares (pre-emptive right). However, it does not apply in certain circumstances.

2.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?

There are no regulations governing conditional offers, the requirement of bank guarantees, or guarantees of funding the purchases. Such requirements are only subject to the consensus between the buyers and the sellers.


3.1 What are the basic tax considerations and trade-offs?

Tax-neutral: any merging company may transfer its assets to a surviving company on a book value basis (pooling interest) instead of a market value basis. However, the company should: (i) submit an application to the directorate general of taxation to obtain an approval, accompanied by reasons or aims of the merger and any other requirements; (ii) have paid all taxes payable on any related entity; and (iii) meet the business purpose test.

Tax losses compensation: a company may compensate its tax losses for five years. In the event that the surviving company with tax losses merges with a company with profit, then the surviving company may compensate its losses to the merging company. However, compensation for losses is not allowed if the merger is conducted on a book value basis.

VAT exemption: any transfer of assets resulting from merger or acquisition is exempted from VAT if both transferor and acquirer are taxable entrepreneurs.

3.2 Are there special considerations in cross-border deals?

Cross-border deals are subject to general taxation provisions or tax treaties applicable to relevant foreign taxpayers (for example, income tax as a result of any capital gain obtained by the foreign taxpayer who sells its shares).


4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?

Indonesian laws and regulations implicitly stipulate anti-takeover defences in the antitrust, Company and capital market law (the most important of which are found in the Company Law). The Company Law provides protection to the minority shareholders' interests where the minority shareholders of a target which do not agree with the takeover are entitled to request the target company to purchase their shares at an appropriate price. Every shareholder is also entitled to institute legal proceedings against the target company in the relevant courts. There is no specific restriction to use defences. However, the courts have sole discretion to accept or reject the claim made by the minority shareholders

4.2 How do targets use anti-takeover defences?

One mandatory clause is that any issuance or transfer of shares must first be offered to the existing shareholders. Incorporating a mechanism requiring the shareholders' approval for any transfer or issuance of shares may also be an effective anti-takeover defence. Only the shareholders of the target can resist the change of control by not approving the M&A. Other possible defences are applying the management stock option plan (MSOP) or employee stock option plan (ESOP). This means the management or employee of the target have the right to request that the shares to be sold, be first offered to them.

4.3 Is a target required to provide due diligence information to a potential bidder?

The regulation is silent on this. However, it is common practice to conduct due diligence on the target company in order to verify all legal documentation of the target company. All information from the due diligence will then be used by the bidder's legal counsel to issue a legal opinion of the relevant target company.

4.4 How do bidders overcome anti-takeover defences?

The bidder may overcome any defences by buying listed shares in a public stock exchange.

4.5 Are there many examples of successful hostile acquisitions?

Hostile acquisitions rarely happen in Indonesia. However, the Lippo Group's acquisition of Matahari may be considered a hostile takeover.


5.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?

As a general rule, the Company Law requires that all M&A be preceded by a proposal which is drawn up jointly by the boards of directors of the companies involved. A summary of the plan must then be announced in a daily newspaper and to all employees of the companies involved, no later than 14 days before the dispatch of the notices for the GMS (general meeting of shareholders), at which the acquisition or merger plan will be discussed. The plan must be approved by the GMS of each of the companies involved in the merger, and in an acquisition it has to be approved by the acquired GMS. In the case of a merger, in the application for GMS approval, a draft of the merger agreement must be submitted along with the merger plan. It is common for the parties to enter into a preliminary agreement first to show the commitment prior to tying up a deal.

5.2 To what extent are deal protections limited, for example by restrictions on impediments to bidding competition, break fees or lock up agreements?

The deal conditions of M&A are subject to the consent of the parties, by considering the following: (i) the interest of the company, the minority shareholders, and employees of the company; (ii) the creditors and other business partners of the company; and (iii) the public, and fair competition in doing business.

If the conditions above are not fulfilled, the merger or acquisition may not be conducted.

There are no regulatory constraints specifically aimed at payment of break fees on M&A transactions. The general concept of damages in the Indonesian Civil Code applies if the agreed amount for the payment of break fees is not paid. The availability of break fees is also subject to the agreement between the parties.


6.1 What are the antitrust notification thresholds in your jurisdiction?

Written notification to the KPPU is mandatory when the value of assets or the value of sales in an M&A transaction exceeds a certain amount.

6.2 When will transactions falling below those thresholds be investigated?

In brief, certain conditions of M&A which trigger mandatory notification are: (i) if the value of assets of the business entity resulting from the merger, consolidation and acquisition exceeds Rp2.5 trillion ($189 million); (ii) if the value of sales of the business entity resulting from the merger, consolidation and acquisition exceeds Rp5 trillion; and (iii) specifically in the banking sector, if the value of assets of the business entity resulting from the merger, consolidation and acquisition exceeds Rp20 trillion.

6.3 Is a notification filing mandatory or voluntary?

Notification to the KPPU toward certain conditions of M&A is mandatory.

6.4 What are the deadlines for filing, and what are the penalties for not filing?

In the event of a business actor failing to submit a written notification of the merger, consolidation, or acquisition within 30 working days of it becoming effective, the KPPU will impose administrative sanctions of Rp1 billion for every one day delay. The maximum administrative sanction that can be imposed is Rp25 billion.

6.5 How long are the review periods?

The evaluation by the KPPU should be done in no later than 90 working days as of the date of receipt of complete notification documents by the KPPU.

The consultation phase consists of an initial assessment and a comprehensive assessment. The initial assessment will be conducted by the KPPU within 30 days of the receipt of a complete form and documents by the KPPU. If the initial assessment shows that the proposed transaction may cause a monopoly and unfair business practices, the KPPU may continue the assessment as a comprehensive assessment within 60 working days as of the completion of the initial assessment.

6.6 At what level does your authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?

Basically, the KPPU is authorised to control mergers that influence the condition of competition in the Indonesian domestic market. Foreign mergers taking place outside the Indonesian jurisdiction are not under the control of the KPPU as long as they do not affect or influence the condition of the domestic competition. However, the KPPU has the authority and will exercise its authority on such mergers if they affect the Indonesian domestic market, with due consideration to the effectiveness of the exercise of the authority possessed by the KPPU.

6.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?

The main obstacles that bidders should be aware of include: (i) the requirement to provide Indonesian translations of any agreements that will be entered into between a foreign and Indonesian party; and, (ii) the foreign exchange system. Further, there are certain matters that are still not regulated under Indonesian Law, such as: (i) the listing procedure of Indonesian shares in international stock exchanges; and (ii) the implementation regulation which specifically regulates a spin-off of an Indonesian company.


7.1 What is the applicable anti-corruption legislation in your jurisdiction?

The applicable anti-corruption legislations, are: Law 8 of 1981 on the Law of Criminal Procedure; Law 8 of 2010 on the Prevention and Eradication of Money Laundering Crime; Law 46 of 2009 on the Court of Criminal Acts of Corruption; Law 31 of 1999 on the Eradication of the Criminal Act of Corruption as amended by Law 20 of 2001; Law 30 of 2002 on the Commission for the Eradication of Criminal Acts of Corruption; Law 28 of 1999 on the State Organiser Who Is Clean and Free From Corruption, Collusion, and Nepotism; Law 7 of 2006 on Ratification of United Nations Conventions Against Corruption, 2003; and any other implementing regulations.

7.2 What are the potential sanctions and how stringently have they been enforced?

The potential sanctions vary from fines up to Rp1 billion, imprisonment up to 20 years, or lifetime imprisonment or the death penalty as stipulated under Law 31 of 1999.


8.1 Are there any other material issues in place in your jurisdiction that might affect a transaction?

Another issue which may affect M&A transactions in Indonesia is the Negative List. It stipulates which sectors are open to foreign investment in Indonesia as well as the percentage of foreign ownership permitted.

8.2 What are the key recent M&A developments in your jurisdiction?

There have been significant changes in Indonesian jurisdictions relating to M&A. For example, the Indonesian Court has earned public trust since it was deemed to have developed its system and working procedures in an appropriate manner. Further, a convenience procedure has been introduced for listing shares on the Indonesian Stock Exchange. Also, the implementation of transfer tax (income tax, VAT and duty on acquisition of rights to land and buildings) for M&A transactions in Indonesia.


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Freddy Karyadi
Ali Budiardjo Nugroho Reksodiputro

About the author

Freddy Karyadi joined ABNR as senior associate in July 2007 and became a partner in January 2012. He read law at the University of Indonesia (1998) and Leiden University, majoring in international tax law (2002). He also graduated cum laude in 1997 from the faculty of economics of Trisakti University in Jakarta. He has participated in various trainings and seminars in Indonesia and abroad. Prior to joining ABNR, he worked for a number of years in other prominent law firms in Jakarta. In 2010, he was seconded to a prominent Dutch law firm, Loyens & Loeffs in Amsterdam. His special practice areas are capital markets, M&A, taxation, banking and corporate finance matters. He has represented numerous financial institutions, banks, private equity and funds, and multinational companies. In addition to being an advocate and tax attorney, he is also a registered accountant.


Ayik Candrawulan Gunadi
Ali Budiardjo Nugroho Reksodiputro

About the author

Ayik Candrawulan Gunadi joined ABNR as an associate in September 2001 and became a partner in October 2013. He graduated in 1997 from the faculty of law, Parahyangan Catholic University, and in 2000 completed his LLM programme at the Erasmus University Rotterdam, the Netherlands. Before joining ABNR, he worked for a law firm and a prominent insurance company in Indonesia. He also worked in the Netherlands, as a foreign trainee with Loyens & Loeff, an international legal and tax consultant in Rotterdam, and then with a Dutch Bank in Amsterdam. He has extensive experience in matters involving corporate law, foreign investment, intellectual property and project finance, and has been actively involved in infrastructure projects in Indonesia. He returned to ABNR after a few months with a major Indonesian power company as its senior legal manager, and now heads the ABNR team which monitors regulations in connection with energy and mineral resources projects. He is a licensed tax consultant.