Mergers &

Acquisitions
Contributing editor
Alan M Klein

2017 © Law BusinessResearch 2017

 Mergers &
Acquisitions 2017
Contributing editor
Alan M Klein
Simpson Thacher & Bartlett LLP

Publisher The information provided in this publication is

Law
Gideon Roberton general and may not apply in a specific situation.
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© Law BusinessResearch 2017

CONTENTS

Global overview 6 Ecuador 85

Alan M Klein José Rafael Bustamante Crespo and Kirina González
Simpson Thacher & Bartlett LLP Bustamante & Bustamante

Cross-Border Mergers & Acquisitions: The View from Canada 8 England & Wales 89
Ian Michael Michael Corbett
Bennett Jones LLP Slaughter and May

Franchise M&A 11 Finland 99

Andrae J Marrocco Olli Oksman and Panu Skogström
Dickinson Wright LLP Kalliolaw Asianajotoimisto Oy – Attorneys-at-Law

Argentina 15 France 104

Ricardo H Castañeda Sandrine de Sousa and Yves Ardaillou
Estudio O’Farrell Bersay & Associés

Australia 22 Germany 110

John Keeves Gerhard Wegen and Christian Cascante
Johnson Winter & Slattery Gleiss Lutz

Austria 28 Ghana 118

Rainer Kaspar and Ivana Dzukova Kimathi Kuenyehia, Sr, Sarpong Odame and Dennis Dangbey
PHH Prochaska Havranek Rechtsanwälte GmbH & Co KG Kimathi & Partners, Corporate Attorneys

Belgium 33 Hungary 123

Michel Bonne, Mattias Verbeeck, Hannelore Matthys and David Dederick, Pál Szabó and Dániel Rácz
Sarah Arens Siegler Law Office / Weil, Gotshal & Manges
Van Bael & Bellis
India 128
Bulgaria 39 Rabindra Jhunjhunwala and Bharat Anand
Gentscho Pavlov and Darina Baltadjieva Khaitan & Co
Pavlov and Partners Law Firm in cooperation with
CMS Reich-Rohrwig Hainz Rechtsanwälte GmbH
Indonesia 138
Mohamad Kadri, Merari Sabati and Yohanes Brilianto Hadi
Canada 44 Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)
Linda Misetich Dann, Brent Kraus, Ian Michael, Paul Barbeau,
Chris Simard and Andrew Disipio
Ireland 144
Bennett Jones LLP
Madeline McDonnell
Matheson
Cayman Islands 51
Rob Jackson, Ramesh Maharaj and Adrian Cochrane
Italy 153
Walkers
Fiorella Federica Alvino
Ughi e Nunziante – Studio Legale
China 56
Caroline Berube and Ralf Ho
Japan 159
HJM Asia Law & Co LLC
Kayo Takigawa and Yushi Hegawa
Nagashima Ohno & Tsunematsu
Colombia 61
Enrique Álvarez, Santiago Gutiérrez and Darío Cadena
Korea 164
Lloreda Camacho & Co
Gene-Oh (Gene) Kim and Joon B Kim
Kim & Chang
Czech Republic 69
Rudolf Rentsch
Kyrgyzstan 170
Rentsch Legal
Saodat Shakirova and Aisulu Chubarova
ARTE Law Firm
Denmark 76
Thomas Weisbjerg and Brian Jørgensen
Latvia 174
Nielsen Nørager Law Firm LLP
Gints Vilgerts and Vairis Dmitrijevs
Vilgerts
Dominican Republic 82
Mariángela Pellerano
Luxembourg 178
Pellerano & Herrera
Frédéric Lemoine and Chantal Keereman
Bonn & Schmitt

2 Getting the Deal Through – Mergers & Acquisitions 2017

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 CONTENTS

Macedonia 183 Slovenia 261

Emilija Kelesoska Sholjakovska and Ljupco Cvetkovski Nataša Pipan Nahtigal and Jera Majzelj
Debarliev, Dameski & Kelesoska Attorneys at Law Odvetniki Šelih & partnerji, o.p., d.o.o.

Malaysia 189 Spain 268

Addy Herg and Quay Chew Soon Mireia Blanch
Skrine Buigas

Malta 194 Sweden 273

Ian Gauci and Cherise Ann Abela Anett Kristin Lilliehöök, Sten Hedbäck and Sandra Broneus
GTG Advocates Advokatfirman Törngren Magnell KB

Mexico 200 Switzerland 279

Julián J Garza C and Luciano Pérez G Claude Lambert, Reto Heuberger and Franz Hoffet
Nader, Hayaux y Goebel, SC Homburger

Myanmar 204 Taiwan 286

Takeshi Mukawa and Ben Swift Sonia Sun
MHM Yangon KPMG Law Firm

Netherlands 209 Tanzania 290

Allard Metzelaar and Willem Beek Brenda Masangwa, Nimrod Mkono and Naomi Zayumba
Stibbe Mkono & Co Advocates

Nigeria 214 Turkey 295

Olumide Akpata, Oyeyemi Immanuel and Ojonugwa Ichaba E Seyfi Moroğlu, E Benan Arseven and Burcu Tuzcu Ersin
Templars Moroğlu Arseven

Norway 219 Ukraine 304

Ole Kristian Aabø-Evensen Volodymyr Yakubovskyy and Tatiana Iurkovska
Aabø-Evensen & Co Advokatfirma Nobles

Poland 230 United States 310

Dariusz Harbaty, Joanna Wajdzik and Anna Nowodworska Alan M Klein
Wolf Theiss Simpson Thacher & Bartlett LLP

Portugal 237 Venezuela 315

Diogo Leónidas Rocha and Gonçalo Castro Ribeiro Jorge Acedo-Prato and Victoria Montero
Garrigues Portugal SLP - Sucursal Hoet Peláez Castillo & Duque

Serbia 242 Vietnam 319

Nenad Stankovic, Tijana Kovacevic and Sara Pendjer Tuan Nguyen, Phong Le, Tuyet Ho and Huong Duong
Stankovic & Partners bizconsult Law Firm

Singapore 249 Zambia 326

Mark Choy and Chan Sing Yee Sharon Sakuwaha
WongPartnership LLP Corpus Legal Practitioners

Slovakia 256 Appendix 332

Erik Seman and Matus Lahky David E Vann, Jr, Ellen L Frye and Étienne Renaudeau
Barger Prekop s.r.o. Simpson Thacher & Bartlett LLP

www.gettingthedealthrough.com 3
© Law BusinessResearch 2017
INDONESIA Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

Indonesia
Mohamad Kadri, Merari Sabati and Yohanes Brilianto Hadi
Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

1 es T
p ofytransaction 2tuteSstaand regulations
How may businesses combine? What are the main laws and regulations governing business
combinations?
This chapter discusses business combinations involving private limited
liability companies (PT) and public companies (PT Tbk). Combination General
of unincorporated entities (such as partnerships and firms) that are The primary law covering business combinations is the Company Law,
used by professionals to do business (such as attorneys and account- with implementing provisions provided in Government Regulation No.
ants) are not addressed. 27 of 1998 on Mergers, Consolidations and Acquisitions.
Under Law No. 40 of 2007 on Limited Liability Companies (the
Company Law), PTs and PT Tbks may combine by way of acquisition,
PT Tbk
merger or consolidation. Business combinations involving PT Tbks are also subject to Law No.
Acquisition is defined in the Company Law as the acquisition of 8 of 1995 on Capital Markets (the Capital Markets Law) and imple-
shares of a target PT resulting in the transfer of control. Acquisition can menting regulations issued by the chairman of the Financial Services
be accomplished by purchasing existing shares directly from share- Authority (OJK)). OJK assumed the functions, duties and authorities
holders or by subscription of new shares in the PT. Existing shares can of the Financial Institutions Supervisory Body (Bapepam-LK) as of
be purchased directly from the shareholders or through the manage- 31 December 2012. Although Bapepam-LK was replaced by the OJK,
ment of the Company. In the latter case it may take longer time. all prevailing Bapepam-LK regulations remain in force until replaced
The Company Law does not provide a definition of ‘control’ with or revoked.
respect to private PTs, but in practice, ‘control’ is commonly inter- Regulations of the Indonesia Stock Exchange apply to the listed
preted to mean the ability to influence the management and policy shares of PT Tbks.
of the company, which can be evidenced by ownership of more than
50 per cent of shares, control over the majority of voting rights or the
Foreign capital investment companies (PT PMA)
ability to appoint key management. Consolidation of a subsidiary’s
For PTs with foreign capital investment (PT PMA), Law No. 25 of
financial statements can be considered de facto evidence of control.
2007 on Capital Investment (the Investment Law) and its imple-
However, for PT Tbks, Bapepam-LK Rule No. IX.H.1 on Acquisition of
menting regulations must be observed, including Capital Investment
Public Companies explicitly defines ‘controlling shareholder’ as a party
Coordinating Board (BKPM) Regulation No. 14 of 2015 on Guidelines
that owns more than 50 per cent of shares, or has the ability to decide
and Procedures for Investment Principal Licence, as amended by
on the management or policies of the PT Tbk. Meanwhile, for banks,
BKPM Regulation No. 8 of 2016, BKPM Regulation No. 15 of 2015 on
pursuant to Bank Indonesia (BI) Regulation No. 12/23/PBI/2010 on the
Guidelines and Procedures for Investment Licences and Non-licences,
Fit and Proper Test, the threshold to be considered a controlling share-
and Presidential Regulation No. 44 of 2016 on the List of Business
holder is lower, with at least 25 per cent of share ownership, or an ability
Fields Closed, and Business Fields that are Open, with Conditions, for
to decide the management or policies of the bank, or both.
Foreign Investment (known as the Negative Investment List), which
Merger is defined as one or more PTs merging into an existing PT
prescribes specific foreign shareholding limitations and other restric-
(surviving PT). All assets and liabilities, including business operations
tions for various sectors based on type of activity and scale of business.
and financial losses, transfer to the surviving PT by operation of law
The Negative Investment List is subject to amendment from time to
upon completion of the merger. The merging PTs are dissolved without
time, based on changes in policy and market conditions. Investors from
liquidation. The shareholders of the merging PTs become the share-
ASEAN member states enjoy a higher percentage of foreign share own-
holders of the surviving PT.
ership for certain lines of business, for example, in shipping. For past
Consolidation is defined as two or more existing PTs combining to
investments which have been approved, foreign shareholding limita-
form a new PT. All assets and liabilities transfer to the new PT by opera-
tions are grandfathered, unless new provisions are more beneficial for
tion of law. The consolidating PTs are dissolved without liquidation.
the investors. PMA companies whose shares are listed in the capital
The shareholders of the consolidating PTs become the shareholders of
market are not subject to the Negative Investment List, although they
the new PT.
may still be subject to sector specific shareholding limitations pre-
Mergers and consolidations between Indonesian and foreign enti-
scribed in other laws (see below).
ties are not recognised under the law.
Acquisition of shares of an existing PT PMA and conversion of a
The Company Law also recognises business separation in the
domestic PT to become a PT PMA both require specific approval by
form of pure demerger (in which all assets and liabilities of a PT are BKPM, which will examine the proposed shareholding to determine
transferred to two or more PTs) and spin-off (transfer of some of a PT’s if it complies with the Negative Investment List and sector-specific
assets and liabilities to one or more PTs), as well as transfer of assets
limitations on foreign shareholding, such as those that apply in the
or business. financial services, transportation, mining, media, public works, and
construction, among others. Under the Investment Law, any amount of
foreign shareholding (whether at the PT or parent level) makes a PT a
PT PMA, which must comply with the rules limiting foreign ownership.
For foreign investment channelled through Indonesian venture capi-
tal companies, the shares held by those companies must be divested
within 10 years.

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Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET) INDONESIA

Antimonopoly laws Ministry of Law and Human Rights (MOLHR), if the merger involves
Law No. 5 of 1999 on Prohibition of Monopoly Practices and Unfair an amendment of the PT’s AoA, or simply notify the MOLHR if the
Business Competition (the Antimonopoly Law) prohibits unaffiliated merger does not involve amendment of the AoA. In consolidation, the
PTs from any business combination that will lead to a monopoly or new PT must file the consolidation deed for approval by the MOLHR.
unfair competition. If a business combination causes combined asset The amended AoA are then published in the State Gazette.
value or total sales to exceed minimum thresholds, the Commission for For merger or consolidation of a PT Tbk, within two working days
Supervision of Business Competition (KPPU) must be notified within after the merger or consolidation plan is approved by the boards of
30 working days from the date the business combination takes effect. commissioners of the relevant companies, a merger or consolidation
Government Regulation No. 57 of 2010 on Mergers, Consolidations statement must be filed with the OJK to obtain an effective letter from
and Acquisitions that Cause Monopoly Practices and Unfair Business the OJK.
Competition sets minimum thresholds of 2.5 trillion rupiah for com-
bined assets and 5 trillion rupiah for total sales. For the banking sec- Acquisitions
tor, the threshold is turnover in excess of 20 trillion rupiah. A draft In direct acquisition of shares from existing shareholders of the
bill revising the Antimonopoly Law has been under discussion in the target PT, no acquisition plan is required, usually just a sale and
House of Representative and is included in the priority list of laws to purchase of shares agreement and a notarial deed for transfer
be issued in 2017. of shares after the normal due diligence procedure. For acquisi-
tion by subscription of new shares, after due diligence, a sub-
Specific laws and regulations depending on lines of business scription agreement will be executed and approved by a general
Other laws and regulations may impose specific limitations on share- meeting of shareholders. Issuance of new shares requires an amend-
holding, divestment requirements and shareholder eligibility criteria, ment of the AoA, which must be approved by the MOLHR and
depending on the lines of business of the PTs involved. For example: published in the State Gazette.
• Law No. 7 of 1992 on Banking, and its amendment, as well as Bank Direct transfer of shares without amending the AoA needs only to
Indonesia and OJK regulations and decrees, including those gov- be notified to, rather than approved by, the MOLHR.
erning the fit and proper test for controlling shareholders, single The acquisition of a PT Tbk may also be conducted by way of pur-
presence policy, and single ownership limitation; chasing shares from existing shareholders, or by way of subscription
• Law No. 40 of 2014 on Insurance and certain Ministry of Finance (Rights Issue) with the following provisions:
and OJK regulations and decrees governing insurance businesses; In an acquisition of a PT Tbk from the existing shareholders,
• Law No. 4 of 2009 on Mineral and Coal Mining, Government Bapepam Rule IX.H.1 obliges a mandatory tender offer to the public
Regulation No. 23 of 2010 on Implementation of Mineral and Coal shareholders. In this case, after the acquisition, the acquirer shall pur-
Mining Business Activities (as lastly amended by Government chase the shares owned by the public at a premium price (based on the
Regulation No. 1 of 2017) and Minister of Energy and Mineral average trading price for a certain period).
Resources Regulation No. 9 of 2017 regarding Procedures for Share In an acquisition of a PT Tbk by way of Rights Issue, based on
Divestment and Determination of Share Price – mining is subject OJK Regulation No. 32/POJK.04/2015 on Capital Increase with Rights
to a ‘one company, one licence’ policy, so merger or consolidation Issue, the PT Tbk shall firstly submit a Registration Statement to OJK
among mining companies is generally not permitted; to obtain the effective letter for Rights Issue, and the Rights Issue itself
• Law No. 13 of 2010 on Horticulture, in which divestment is stipu- shall be approved by the GMS. In this case, the acquirer shall be exempt
lated, but to date procedural regulations have not been issued; and from the mandatory tender offer obligation.
• Law No. 36 of 1999 on Telecommunications and Law No. 32 of A PT Tbk can also increase its capital without pre-emptive rights
2002 on Broadcasting governing media businesses. (privateplacement), including by way of an Employee Share Ownership
Programme or Management Share Ownership Programme, to avoid
3 Governing law the lengthy process of Rights Issue. In this case, disclosure of informa-
What law typically governs the transaction agreements? tion is required pursuant to OJK Regulation No. 38/POJK.04/2014 on
Increase of Capital of Publicly Listed Companies without Pre-emptive
For mergers and consolidations involving Indonesian entities, Rights. However, the acquirer can only purchase maximum of 10 per
Indonesian laws typically (although not always) govern the agree- cent of the issued and paid-up capital of the PT Tbk.
ments. For acquisitions, the parties may agree on a foreign law to gov-
ern the transaction agreements. In either case, Law No. 24 of 2009 on Foreign investment companies (PT PMA)
Flag, Language, National Coat of Arms and National Anthem requires Any business combination involving a PT PMA requires prior approval
that any agreement involving an Indonesian party be written in the from BKPM. Transfer ofshares ofa PTPMA and conversion from domes-
Indonesian language (bilingual is acceptable). There is no requirement, tic PT to PT PMA both require BKPM approval before the amended AoA
however, that Indonesian must be the governing language. can be submitted to the MOLHR. In the case of conversion to PT PMA,
BKPM will issue a principal licence approving the company’s status as
4 Filings and fees a foreign investment company. Regarding the Indonesian subsidiaries
Which government or stock exchange filings are necessary of a PT PMA, the Investment Law requires all companies with ultimate
in connection with a business combination? Are there stamp foreign shareholding to be converted to PMA status, albeit with no stip-
ulated time frame for conversion to be accomplished.
taxes or other government fees in connection with completing
a business combination?
Sector-specific requirements
Mergers and consolidations As noted above, certain fields of business are subject to additional over-
In a merger or consolidation, the board of directors of each PT involved sight and regulation. For instance:
must prepare a merger or consolidation proposal for approval by their • financial services companies must obtain approval from the OJK;
boards of commissioners and shareholders, including, among others: • mining companies must obtain approval from the relevant licence-
• procedures for share valuation and conversion; issuing authorities (central or regional governments) and the
• method for settling the status, rights and obligations of employees, Ministry of Energy and Mineral Resources; and
creditors and dissenting shareholders; and • some types of companies may need recommendations from the
• three years’ financial statements for each PT involved and pro relevant technical ministry. For example, conversion of a planta-
forma financial statement of the surviving company or new con- tion company from a domestic PT to PT PMA because of acquisi-
solidated company. tion by a foreign shareholder requires a recommendation from the
Director General of Plantations of the Ministry of Agriculture.
The parties then draft a notarial merger or consolidation deed in
Indonesian language, which contains the terms of the plan and the
proposed articles of association (AoA) of the surviving or new PT. In a
merger, the surviving PT must file the merger deed for approval by the

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INDONESIA Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

Stamp duty and fees estimate of the number of shares to be acquired, information about the
For private companies, there is no fee charged in relation to a business acquirer, and the negotiation method. The acquirer would then update
combination except for the 6,000 rupiah stamp that is affixed to each the public and OJK of any progress in the negotiation process.
transaction document. After completion, the acquirer is required to announce the infor-
For PT Tbks in the financial services sector, Government mation related to the acquisition (total shares acquired, information
Regulation No. 11 of 2014 on Levies imposes certain fees for business on the acquirer, and purpose of acquisition) in at least one national
combinations reviewed by OJK based on the type of corporate action Indonesian language daily newspaper and deliver the same to the OJK
performed by the PT Tbk, as follows: and the Indonesia Stock Exchange within one working day.
• acquisition through purchase of existing shares: 25 million rupiah
fixed fee; Specific information disclosure on acquisition by way of rights
• acquisition through voluntary tender offer to existing sharehold- issue
ers: 25 million rupiah fixed fee; The company must disclose general information during the announce-
• acquisition through rights issue: 0.025 per cent of the issuance ment of GMS and more detailed information in the Prospectus of
value with maximum amount of 500 million rupiah; and Rights Issue.
• merger or consolidation: 0.05 per cent of the combined asset value In the GMS announcement, the following must be disclosed,
of a transaction (based on financial statements), with a maximum among others:
amount of 250 million rupiah. • number of new shares to be issued;
• approximate timeline;
5 Information to be disclosed • analysis on the effect of the rights issue to the company’s finances
What information needs to be made public in a business and existing shareholders; and
combination? Does this depend on what type of structure is • general forecast on the purpose of the funds raised under the
used? rights issue.

General In the prospectus (which will be issued before and after the book-build-
A summary of the merger, consolidation or acquisition plan must be ing), the following must be disclosed, among others:
announced in a national Indonesian language newspaper and noti- • use of proceeds;
fied to the employees of each PT involved not later than 30 days • debt statements;
before the general meeting of shareholders that will approve the busi- • management discussion and analysis;
ness combination. • risk factors (industry risk, business risk, country risk, shareholding
The announcement satisfies the requirement to notify creditors, risk, etc);
who will have 14 days from the date of the announcement to register • business prospects;
their objections. All objections must be settled by the board of direc- • equity;
tors or presented to the general meeting of shareholders to be resolved • financial statement; and
before the business combination can proceed. • timeline of rights issue.
The PTs are required to make a second announcement in one
Indonesian language newspaper within 30 days after the merger, con- After completion, as regulated under OJK Regulation No. 31/
solidation, or acquisition is completed. POJK.04/05 on Information Disclosure or Material Facts by Issuer or
Public Company, the PT Tbk shall announce the business combination
PT Tbks in a newspaper and on the company website within two working days.
For PT Tbks, several provisions in OJK require public disclosures in the
event of a business combination. 6 Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large
Specific information disclosure on merger or consolidation shareholdings in a company? Are the requirements affected if
OJK Regulation No. 74/POJK.04/2016 requires that the merger or con- the company is a party to a business combination?
solidation plan be announced in one nationally circulated Indonesian
language newspaper and on the PT Tbk’s website. The announcement For private companies, there is no requirement to disclose sharehold-
must include a summary of the following information, inter alia: ings other than to the MOLHR and the Ministry of Trade. For PT Tbks,
• general information of the company (name, domicile, capital OJK Regulation No. 60/POJK.04/2015 on Disclosure of Information on
structure, management structure, shareholding structure, etc); Certain Shareholders (‘Bapepam Rule X.M.1’) requires both the com-
• schedule of the merger or consolidation; pany and any party obtaining 5 per cent or more of the paid-up shares
• reasons for the merger or consolidation; to report the change of ownership to the OJK within 10 calendar days.
• share conversion procedures; For certain regulated industries, for instance, financial services and
• draft amendment of the AoA of the surviving company or draft mining, additional submissions regarding shareholding are required by
deed of establishment of the consolidated company; the relevant regulator.
• financial statements for each PT involved and pro forma financial
statement of the surviving company or new consolidated company 7 Duties of directors and controlling shareholders
(the last two years if the merger or consolidation involves two PT What duties do the directors or managers of a company owe to
Tbks or the last three years if the merger or consolidation involves the company’s shareholders, creditors and other stakeholders
a PT Tbk and a private PT);
in connection with a business combination? Do controlling
• independent valuation of the share value and the PTs’ assets;
• legal opinion from an independent legal consultant registered with shareholders have similar duties?
OJK regarding legal aspects of the merger or consolidation; and Directors and commissioners of a PT have a fiduciary duty to act in
• settlement of status, rights and obligations of employees, creditors good faith for the interests of the PT.
and minority shareholders. The Company Law requires that a business combination take into
account the interests of the PT itself, minority shareholders, employ-
In the event the merger or consolidation will result in the entering of ees, creditors, business partners, the public and fair competition
new controlling shareholder, the merger or consolidation plan shall in business.
also include information on the new controlling shareholder. Under the Company Law, the boards of directors of the PTs
involved in a business combination are required to prepare a plan of the
Specific information disclosure on acquisition from an existing business combination to be announced to the shareholders, employees
shareholder and creditors of each PT.
At the negotiation stage, the acquirer may (but is not obliged to) dis- Controlling shareholders do not have similar duties, except for
close to the public and OJK about the negotiation process, including an controlling shareholders of PT Tbks, who, in order to avoid insider

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trading, must sign a non-disclosure agreement with prospective buyers shares to the other current shareholders before it can accept an offer
before due diligence on the PT can commence. from a third party. The other shareholders have the right to maintain
their proportional ownership in the PT, which frustrates any attempt
8 Approval and appraisal rights at dilution. Moreover, AoAs generally include provisions that require
What approval rights do shareholders have over business prior approval from a general meeting of shareholders for any trans-
fer of shares or issuance of new shares. With these measures, the PT
combinations? Do shareholders have appraisal or similar
and the shareholders can prevent undesired bidders from becom-
rights in business combinations?
ing shareholders.
Shareholder approval by three-quarters of valid votes cast at a general
meeting of shareholders attended by at least three-quarters of voting 11 Government influence
shares is required for all business combinations (including transfer of Other than through relevant competition regulations, or
substantial assets of the PT). in specific industries in which business combinations are
A shareholder who opposes a business combination can require the
regulated, may government agencies influence or restrict the
controlling shareholders (or the PT itself ) to purchase their shares at a
completion of business combinations, including for reasons
reasonable price.
Minority shareholders holding at least 10 per cent of shares can of national security?
request a district court to instruct the PT to provide data and infor- BKPM has the authority to approve or deny business combinations,
mation if there is any suspicion that the PT or its board of directors or based on statutory limits on foreign shareholding contained in the
board of commissioners may cause damage to the PT, its shareholders, Negative Investment List and sector-specific regulations. In addition
or a third party. to foreign shareholding restrictions, the Negative Investment List sets
For PT Tbks, the transaction value of the business combination out various requirements for certain lines of business, such as approval
(for a merger or, if the PT Tbk intends to acquire a private company) from licensing agencies or restrictions as to what type of entity can
shall be appraised by an independent appraiser. In the event that based engage in certain sectors. The Negative Investment List also protects
on the appraisal the transaction value of the business combination is SMEs by reserving certain lines of business only for them. Politically
not in the normal price range, OJK may not approve the business com- controversial sectors, such as alcoholic beverage production, and sec-
bination. Further, the shareholders who do not agree to the proposed tors affecting security, such as weapons or explosives production, may
business combination may object to the transaction by requesting the be closed to investment altogether, or at least subject to more stringent
PT Tbk to buy back their shares, or if the business combination violates oversight. OJK may require certain disclosures or amendments to fil-
any capital market regulations in Indonesia, the objecting shareholders ings related to PT Tbks before a proposed business combination can
may file to the court. proceed, and with respect to financial services companies, OJK has
the authority to approve or deny prospective shareholders based on
9 Hostile transactions the outcome of the fit and proper test.
What are the special considerations for unsolicited transactions? Business combinations involving state-owned enterprises or
region-owned enterprises are subject to approval from the Indonesian
Unsolicited transactions are uncommon and difficult to complete for parliament, the central government, or the relevant regional parlia-
non-publicly listed PTs in Indonesia, because transfer and issuance of ment or regional government, in accordance with their authority.
shares both require approval by a general meeting of shareholders.
For PT Tbks, an acquirer may launch a voluntary tender offer of 12 Conditional offers
shares. Based on OJK Regulation No. 54/POJK.4/2015 on Voluntary
Tender Offers (OJK Reg. 54/2015), in order to launch a voluntary ten- What conditions to a tender offer, exchange offer or other
der offer, the acquirer shall first submit a statement of voluntary tender form of business combination are allowed? In a cash
offer to OJK to obtain an effective letter. The statement of voluntary acquisition, may the financing be conditional?
tender offer itself shall include information on the securities that will
In business combinations involving privately held PTs, the condi-
be purchased, the price, identity of the acquirer, purpose of tender offer
tions are determined and agreed upon by the parties. Conditions typi-
and sufficiency of funds to settle the tender offer.
cally pertain to the availability of funding and the allocation of risks
Pursuant to section IV of OJK Reg. 54/2015, the price of the tender
and liabilities.
offer will depend on the objects of the tender offer (shares, warrants or
In a mandatory tender offer (an offer to purchase publicly traded
convertible bonds), as well as their recent trading history.
shares in connection with acquisition of privately held shares), the
OJK Reg. 54/2015 provides for a tender-offer period of 30 to 90
offeror is not permitted to impose special conditions, as after the clos-
days. If no (or an insufficient number of) shares are offered by the exist-
ing of the acquisition, the new controlling shareholder must offer to
ing shareholders, then the tender offer may be cancelled or cannot be
purchase shares held by the public at a mandatory price. If a manda-
completed. During the period of a voluntary tender offer, the PT Tbk
tory tender offer results in the offeror holding more than 80 per cent of
is prohibited from performing any transaction with the sole purpose of
shares in the PT, the offeror is required to refloat enough shares on the
preventing the change of control that would result from completion of
stock exchange so that its shareholding will be reduced to 80 per cent,
the voluntary tender offer.
unless the amount it acquired from the previous controlling share-
holder was greater than 80 per cent, in which case the offeror need
10 Break-up fees – frustration of additional bidders
only refloat enough shares to reduce its holding to the amount acquired
Which types of break-up and reverse break-up fees are from the previous shareholder.
allowed? What are the limitations on a company’s ability to In a voluntary tender offer (an unsolicited offer to buy publicly
protect deals from third-party bidders? traded shares), the offeror may impose special conditions such as,
it will only purchase the shares if a minimum number of shares can
Break-up and reverse break-up fees are determined contractually be obtained.
between the parties to compensate either the seller or the buyer if the In both mandatory and voluntary tender offers, financing for pay-
deal is terminated. For instance, when a seller signs a letter of intent ment of the tendered shares cannot be a condition of the offer.
or enters into a conditional share purchase agreement with a buyer,
the seller will require the buyer to put a certain amount on deposit in
13 Financing
(normally) an escrow agreement to ‘bind’ the buyer. If the transaction
fails to close, the seller will be entitled to retain the deposit as its break- If a buyer needs to obtain financing for a transaction, how is this
up fee. dealt with in the transaction documents? What are the typical
There are no limitations on how a non-publicly listed PT can pro- obligations of the seller to assist in the buyer’s financing?
tect itself from bids by third parties. Under the Company Law, most (if
Availability of buyer’s financing is most often included as a condition
not all) AoAs will have provisions restricting transfer of shares or cre-
precedent to the transaction or at least a condition before further nego-
ating a right of first refusal that requires a shareholder to first offer its
tiations can proceed. For acquisitions of non-publicly listed PTs, the

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INDONESIA Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

Update and trends

Mining commodity prices have been elevated since 2016 and are The Minister of State-Owned Enterprises (BUMN) announced the 2017
expected to increase throughout this year. However, potential investors formation of a BUMN holding bank that will hold shares in several
must keep aware of the new regulations on divestment. This mandatory BUMNs.
divestment applies for all mining companies in Indonesia, including for Further, the Minister of BUMN expects that in 2017 several
holders of a contract of work and coal contract of work. The obligation subsidiaries of BUMNs in construction will list their shares on the IDX
for mining companies to divest foreign shares will be imposed gradu- in order to raise capital for major infrastructure construction.
ally commencing from the fifth year of production up to not more than In the capital market, 15 companies conducted IPOs in 2016. In
51 per cent of their foreign shares by the tenth year. 2017, IDX is targeting 35 companies to IPO and list shares on the IDX.
The latest Presidential Economic Policy Package highlighted IDX believes the increase results from many companies postponing
e-commerce, a fast-growing sector in Indonesia in recent years. The their IPO in 2016 owing to unconducive market factors.
President is preparing an E-Commerce Road Map to support his vision To increase the liquidity of shares, IDX is planning to allow penny
to make Indonesia the biggest digital economy in Southeast Asia. stock trading in the first semester of 2017.
Implementing regulations on e-commerce are expected to be issued In 2016, approximately 40 per cent (about 88 million) Indonesians
in the near future. In connection with this, new Business Classification were active internet users (15 per cent increase over 2015). With the
Numbers (Klasifikasi Baku Lapangan Usaha-KBLI) are anticipated to increasing numbers of internet technology and mobile phone users,
accommodate new lines of business, particularly in e-commerce. a Financal Technoclogy (Fintech) is expected to open new financing
The infrastructure budget has significantly increased in 2017. options for the SMEs scattered over thousands of islands in Indonesia.
There is a huge push for cooperation between the government and Fintech is also expected to reduce the cost of credit risk assessment by
investors for projects in power, roads, transportation, rails, ports, conventional banks and speed up loan distribution in the regions,
among others. especially in unbankable areas.
In banking, the government has, since 2016, encouraged As there is no limitation on the source of funds or types of lenders,
consolidation to maintain sound capitalisation and liquidity. In 2017, Fintech is also expected to channel funds from foreign loans to
OJK identified five commercial banks planning to conduct mergers. Indonesia and open up new access for SMEs to foreign credit markets.

parties may agree that the buyer obtaining financing is a condition to Although they may not be able to block a business combination,
the closing of the transaction. dissenting shareholders are entitled to demand that the other share-
Similarly, obligations of the seller to assist in the buyer’s financing, holders (or the PT itself ) buy back their shares or find a third-party
to the extent there are any, will be agreed by the parties. The seller’s buyer. A PT may not hold more than 10 per cent of its issued shares as
obligations may include a covenant to maintain the target PT as a going treasury stock.
concern and a covenant not to take any action that will reduce the value For PT Tbks, any shareholder (regardless of size of shareholding)
of the target PT during the transaction period until the closing. can claim for compensation if they suffer damages as the result of a
Typically, lenders will conduct limited due diligence to ensure that business combination, insofar as such business combination violates
effective transfer of valid title to the borrower can occur. capital market regulations in Indonesia.
If the financing for the transaction originates from offshore loan
proceeds (including issuance of convertible bonds to an offshore inves- 15 Cross-border transactions
tor or financer), then the buyer is obliged to (i) report the loan to Bank How are cross-border transactions structured? Do specific
Indonesia, pursuant to BI Regulation No. 16/22/PBI/2014 on Reporting
laws and regulations apply to cross-border transactions?
of Foreign Exchange Flows and Reporting of Implementation of
Prudential Principles in the Management of Offshore Loans for Non- Cross-border transactions involving Indonesian PTs must comply with
bank Corporations (PBI 16/22), and (ii) always comply with the pru- relevant laws and regulations in Indonesia. Acquisition of shares in
dential principles regulated under BI Regulation No. 16/21/PBI/2014 a PT by a foreign party is subject to the requirements set forth in the
on Implementation of Prudential Principles in Managing Offshore Company Law, the Investment Law, the Negative Investment List, the
Loans of Non-bank Corporations, as amended by BI Regulation No. Capital Markets Law (for PT Tbks), as well as regulations of the BKPM
18/4/PBI/2016 (PBI 16/21), that includes provisions on liquidity ratio, and laws governing specific industries such as banking, insurance, min-
hedging, and credit rating requirements. ing, media, shipping, etc. Currently, it is not possible to combine (by
It is common for an investor or financier to impose as a covenant way of merger or consolidation) a PT and a foreign entity.
that the borrower will always comply with the requirements of PBI As mentioned above, a company listed on the Indonesian capital
16/22 and PBI 16/21. market (PT Tbk) will be exempted from the foreign investment restric-
tion (except for business sectors that are closed for foreign investment)
14 Minority squeeze-out under the Negative Investment List. However, if a foreign shareholder
May minority stockholders be squeezed out? If so, what steps is mentioned in such PT Tbk’s deed, such PT Tbk shall convert into a
PT PMA and it shall subject to certain compliance of PT PMA.
must be taken and what is the time frame for the process?
While the Company Law requires business combinations to consider 16 Waiting or notification periods
the interests of minority shareholders, in reality, shareholders with 25
Other than as set forth in the competition laws, what are
per cent of shares or less can be squeezed out, because shareholders
the relevant waiting or notification periods for completing
with at least 75 per cent of shares have the power to approve a business
combination in a general meeting of shareholders. business combinations?
In order to approve a business combination, the majority share- To complete a business combination, there are several waiting and
holders will request the board of directors to convene a general meet- notification periods. A newspaper announcement must be made 30
ing of shareholders. Within 15 days, the board of directors must deliver days before the general meeting of shareholders to approve the business
notice of a general meeting of shareholders to be held at least 14 days combination. After announcement, creditors have 14 days to object.
after the date of the notice. The notice must be delivered to all share- Thereafter, until the date of the general meeting of shareholders, the
holders by registered mail or announced in a newspaper. If the board of PTs must settle any creditor objections.
directors fails to deliver notice of the meeting, the board of commission- Employees must be notified at the same time the newspaper
ers may issue or deliver the notice. If neither the board of directors nor announcement is made, in effect giving employees 30 days to decide
the board of commissioners delivers notice of the meeting, sharehold- whether they wish to continue or leave employment.
ers representing at least 10 per cent of shares can request a district court
to allow a shareholder to call the meeting or to order examination of the
PT if they can reasonably claim that the company or its directors or com-
missioners have acted detrimentally to the shareholders or third parties.

142 Getting the Deal Through – Mergers & Acquisitions 2017

© Law BusinessResearch 2017

Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET) INDONESIA

17ctoSr-specific rules
e If two or more collective labour agreements are already in place
among merging or consolidating PTs, the most protective provisions
Are companies in specific industries subject to additional
will prevail.
regulations and statutes?
In merger, consolidation or change of entity status (but not in
As mentioned earlier, there are specific regulations governing share- acquisition), the employer may initiate termination for redundancy,
holding (particularly foreign shareholding) and procedures for financial in which case the employees are entitled to enhanced severance pay,
services, mining, telecommunications and media companies. Certain reward for tenure pay and compensation for fixed allowances.
other industries are subject to additional regulations such as transporta- Because employers do not have the right to terminate employment
tion, shipping, horticulture, and construction. In agriculture, there is a in connection with an acquisition, acquirers often choose to negotiate
cap on the total number of hectares that can be held by a single ‘group’ enhanced termination packages with employees or groups of employ-
of companies, which serves as a de facto limit on business combinations ees whom they wish to terminate. Alternatively, the employees can be
in the plantation sector. Business combinations in the field of mining terminated, rehired and later terminated for redundancy after a suit-
and horticulture are subjected to divestment obligations without regard able period of time has elapsed after the acquisition is complete.
to previously approved foreign shareholding. Even in cases of voluntary resignation, all termination arrange-
ments must be submitted for approval by the labour court, along with
18 Tax issues proof of payment of compensation.
Unless stipulated otherwise in the transaction agreements, the
What are the basic tax issues involved in business
Manpower Law places responsibility for employee rights, including
combinations? rights related to termination, on the new employer (ie, the surviv-
In a business combination that involves a transfer of assets from one ing company, new consolidated company or new ownership of the
entity to another entity, the potential tax implications include value acquired company).
added tax, income tax and statutory tax on transfer of shares.
If a transfer of shares or assets uses the market value, the margin 20 Restructuring, bankruptcy or receivership
between the market value and the book value of the assets will be sub- What are the special considerations for business combinations
ject to income tax. However, in a merger or consolidation, if the pool- involving a target company that is in bankruptcy or
ing-of-interest method is used for merger between affiliates, where
receivership or engaged in a similar restructuring?
assets of the PTs are combined using the book value, there will not
be any income, and as such no income tax will be imposed. Certain In bankruptcy, the bankrupt PT is managed by a receiver who is super-
conditions must be fulfilled to use this method. vised by a judge from the commercial court. All actions of the bankrupt
PT must be approved by the receiver. In certain cases, the receiver will
19 Labour and employee benefits need to get approval from the supervising judge and seek advice from a
What is the basic regulatory framework governing labour and committee of the bankrupt PT’s creditors before it can take a proposed
action. In bankruptcy, the objective of the receiver is to maximise the
employee benefits in a business combination?
bankruptcy estate for the purpose of settling the liabilities of the bank-
As set out in Law No. 13 of 2003 on Manpower (the Manpower Law), rupt PT. Accordingly, the receiver will determine whether a proposed
statutory benefits are triggered upon termination of employment in business combination will be beneficial to the bankruptcy estate.
connection with a business combination. Indonesia adopts the principle of actio pauliana, with the conse-
Under the Manpower Law, in a merger, consolidation, acquisition quence that any transaction conducted up to one year prior to a PT
or change of entity status (going public or delisting) employees may being declared bankrupt can be examined and nullified if it is deter-
elect not to continue their employment, and the employer must pay mined that the transaction was detrimental to creditors or the manag-
statutory termination benefits, including basic severance pay, reward ers of the PT acted in bad faith to transfer assets of the company.
for tenure pay, and compensation for fixed allowances.
If the employees decide to continue working for the PT, the 21 Anti-corruption and sanctions
employer and the employees can agree to simply continue employ- What are the anti-corruption, anti-bribery and economic
ment (with all rights, benefits and tenure being sustained), or they can
sanctions considerations in connection with business
agree to effectively be terminated and rehired by the surviving or new
company, meaning that the employees will receive a basic termination combinations?
package (ie, cash in hand, based on the calculation for voluntary termi- There are no anti-corruption or anti-bribery sanctions related to trans-
nation), but they will lose all tenure and terms of employment, because actions between private parties if there are no state or regional govern-
employment will have commenced afresh. ment funds involved.
Provisions of existing collective labour agreements transfer to the Possible economic sanctions and criminal economic sanctions
new employer and remain in force until expiration or renegotiation. may apply if a business combination breaches the Antimonopoly Law.

Mohamad Kadri [email protected]

Merari Sabati [email protected]
Yohanes Brilianto Hadi [email protected]

The Plaza Office Tower, 29th floor Tel: +62 21 2992 15 15

Jl. MH Thamrin Kav. 28–30 Fax: +62 21 2992 15 16
Jakarta 10350 www.aksetlaw.com
Indonesia

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