Freddy Karyadi and Ayik Candrawulan Gunadi of Ali Budiardjo Nugroho Reksodiputro assess the M&A regulatory framework in Indonesia


1.1 What have been the key recent M&A trends or developments in your jurisdiction?

Recently, there have been several significant changes relating to M&A in Indonesian jurisdictions. These include: (i) the Indonesian court earning the public trust since it is deemed to have developed its system and working procedures in an appropriate manner; (ii) the introduction of a more straightforward procedure for listing shares on the Indonesian stock exchange; and (iii) the implementation of a transfer tax for M&A transactions in Indonesia.

In addition, several banks that are majority owned by foreign banks have recently conducted mergers to comply with the so-called single presence policy regulation. This regulation aims to limit foreign ownership of Indonesian banks.

1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?

The low price of oil in Indonesia has sparked a drop in the prices of other commodities. As a result, some experts predict that oil and gas companies, as well as crude palm oil and mining companies, will undertake M&A transactions.

The drop in oil prices has also led Chinese investors to take over several multinational and local companies in Indonesia, despite the slowdown in China's own economy. Examples include: Toshiba; Panasonic; Bank Windu; and Syngenta.


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

M&A activity is governed by:

law 40 of 2007 on limited liability companies (the Company Law), and the implementing regulation of the former legislation;
law 25 of 2007 on investment, and its implementation under president regulation 39 of 2014 (the Negative List);
law 5 of 1999 on the prohibition of monopoly and unfair business competition, and the implementing regulations;
for public companies, law 8 of 1995 on capital markets, as well as several regulations issued by the Capital Market and Financial Institution Supervisory Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan or BAPEPAM- LK), known as the Financial Services Authority (Otoritas Jasa Keuangan or OJK); and,
any applicable industry-specific regulations.

2.2 How, by whom, 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. For a public company, if there is a mandatory tender offer (MTO) the bidder must submit an announcement draft of MTO information disclosure and its supporting documents to the OJK.

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

Indonesian legislation does not differentiate between the structure of friendly and hostile acquisitions. If the target company does not wish to be acquired, it will be considered a hostile acquisition, although these are rare in Indonesia.

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

The regulation is silent on the structure; see section 2.1.

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

The acquisition of a company usually takes two to four months, depending on the complexity of the transaction. For public companies, the process generally takes at least six months.

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

The consideration is 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. This applies strict rules for an MTO price, depending on whether the shares are listed or have been recently traded.

3.5 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).

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

Under the company law, if the AoA of the target require 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 their shares to a third party.

3.7 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?

Under the company law, all shares issued for the purpose of capital increase must be offered to all shareholders in proportion to the shareholding within the same class of shares (preemptive right).


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

The main tax considerations and trade-offs include:

a merging company can transfer its assets to a surviving company on a book value basis (pooling interest) instead of a market value basis;
a company can compensate its tax losses for five years. If the surviving company with tax losses merges with a profitable company, the surviving company can compensate its losses to the merging company. However, loss compensation is not allowed if the merger is conducted on a book value basis;
any transfer of assets resulting from a merger or acquisition is exempted from VAT to the extent both the transferor and acquirer are taxable as entrepreneurs.

4.2 Are there special considerations in cross-border deals?

Cross-border deals should be subject to general taxation provisions or tax treaties applicable to relevant foreign taxpayers.


5.1 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. The company law provides protection to the minority shareholders' interests where the minority shareholders 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 on using defences. However, the court has sole discretion to accept or reject the claim made by the minority shareholders.

5.2 How do targets use anti-takeover defences?

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 deal. Other possible defences include 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, are offered to them first.

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

The regulation is silent on this. However it is common to conduct due diligence over the target company to verify its legal documentation.

5.4 How do bidders overcome anti-takeover defences?

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

5.5 Are there many examples of successful hostile acquisitions?

Hostile acquisitions are rare in Indonesia; however, the Lippo Group's acquisition of Matahari may be considered a hostile takeover.


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

The company law requires that all M&A transactions be preceded by a proposal 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 general meetings of shareholders (GMS), at which the acquisition or merger plan will be discussed. The plan must be approved by GMS of each of the companies involved in the merger. 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 closing a deal.

6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, 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 these conditions are not fulfilled, the deal may not be conducted.

There are no regulatory constraints specifically aimed at payment of break fees. 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.


7.1 What are the antitrust notification thresholds in your jurisdiction?

Written notification to the Business Competition Supervisory Commission (the Komisi Pengawas Persaingan Usaha, or the KPPU) is mandatory when the value of assets or the value of sales in an M&A transaction exceeds a certain amount.

7.2 When will transactions falling below those thresholds be investigated?

When: (i) the value of assets of the business entity resulting from the merger, consolidation and acquisition exceeds Rp2.5 trillion ($190 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.

The business parties can evaluate the M&A plan and amend any plan that may result in a monopoly or unfair business competition, through an oral or written consultation to the KPPU before the transaction becomes effective.

7.3 Is an antitrust notification filing mandatory or voluntary?

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

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

If a company fails to submit a written notification within 30 working days of the deal becoming effective, the KPPU will impose administrative sanctions of Rp1 billion for every day delay. The maximum administrative sanction that can be imposed is Rp25 billion.

7.5 How long are the antitrust review periods?

The KPPU should complete an evaluation no more than 90 working days from the date of receipt of complete notification documents.

The consultation phase consists of an initial assessment and a comprehensive assessment. The KPPU will conduct an initial assessment within 30 days of receipt of a complete form and documents. If this initial assessment shows that the proposed transaction may cause 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.

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

The KPPU is authorised to control mergers that influence competition in the Indonesian domestic market. Foreign mergers taking place outside the Indonesian jurisdiction are not within the KPPU's control as long as they do not affect or influence the condition of the domestic competition.

7.7 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?

A key obstacle of which bidders should be aware is the requirement to provide Indonesian translations of any agreements entered into between a foreign party and an Indonesian party.

In addition, under a recently-issued Bank Indonesia regulation, any transaction made by individuals or corporations in Indonesia must use the Rupiah. Furthermore, there are certain matters that are still not regulated under Indonesian law. These include (i) the procedure for listing Indonesian shares on an international stock exchange; and (ii) implementing regulation that regulates a spin-off of an Indonesian company.


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

The applicable anti-corruption legislation is:

law 8 of 1981 on the law of criminal procedure;
law 8 of 2010 on the prevention and eradication of money laundering;
law 46 of 2009 on the court of criminal acts of corruption;
law 31 of 1999 on 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 the ratification of United Nations conventions against corruption;
and, any other implementing regulations.

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

The potential sanctions include: fines up to Rp1 billion; imprisonment up to 20 years; lifetime imprisonment; or the death penalty.

From the commencement of operations in 2004 until September 30 2015, the KPK conducted preliminary investigations into 732 cases. This resulted in 440 cases of investigations, and led to prosecution in 374 cases and convictions in 308 cases. As of September 30 2015, the KPK had achieved a 100% conviction rate for the prosecutions it had brought. In furthering the government's commitment to anti-corruption, the KPK has been effective in combating corruption at high levels.


9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?

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


  First published by our sister publication IFLR magazine. Take your free trial today.


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.