On July 20, 2010, the Indonesian Government released the
long-awaited implementing regulation1 (the
"New Regulation") regarding merger
notification in Indonesia, pursuant to the relevant provisions of
the Indonesian anti-monopoly law, Law No. 5 of 19992
(the "Anti-Monopoly Law").
The previously proposed government merger regulations (drafted by the KPPU and released for consultation purposes in January 2010) had set out a new and far-reaching framework involving mandatory pre-merger notification, as discussed in the last OMM alert on Indonesian merger control developments (available here). However, in a surprising change of direction, the January 2010 proposals have been abandoned and the New Regulation provides only for mandatory post-merger notification.
The following article provides an overview of the expected effect of the New Regulation and the post-merger notification process in practice.
The New Regulation
The New Regulation imposes a mandatory post-merger
notification obligation for any merger or acquisition which exceeds
(i) a total asset value of Rp. 2.5 trillion (approx US$280 million)
and/or (ii) a total acquisition value of Rp. 5.0 trillion (approx
US$560 million). The transaction must be reported to the Commission
for the Supervision of Business Competition
("KPPU") within 30 business days of
closing the transaction. Significantly higher thresholds apply to
the banking sector, requiring notification only where the
transaction involves assets exceeding Rp. 20 trillion (approx
US$2.2 billion) in value. Under the New Regulation, failure to
notify the KPPU of a merger or acquisition in excess of these
thresholds may result in administrative sanctions of Rp. 1 billion
per day, up to a maximum of Rp. 25 billion (approx US$2.8
However, unlike the January 2010 proposals, the New Regulation only provides for the possibility of the voluntary pre-merger notification of a prospective merger or acquisition to the KPPU - it is not mandatory. Moreover, the outcome of the pre-merger notification process will not have any legal effect and does not represent a binding KPPU "decision" - it is only advisory in nature and cannot erase the right of the KPPU to issue an infringement decision after the implementation of the merger. Consequently, the voluntary pre-merger notification process may be used by the notifying parties for the purposes of obtaining an indication as to whether the proposed transaction is likely to be challenged by the KPPU. Should the parties go ahead with the merger or acquisition, they would still be required to make a post-merger notification under the New Regulation.
In terms of the merger review process, the New Regulation provides that the KPPU has 90 business days from receiving the filing to assess the transaction and issue a decision. The substantive merger assessment undertaken by the KPPU will apply various types of competition analysis to the relevant market including: concentration levels; entry barriers; anti-monopoly potential; efficiencies of scale and other circumstances relevant to the assessment (for example, one of the transaction parties may be experiencing serious financial difficulties and, without the transaction, may still be forced to leave the market in the near future.).
In making its merger control assessment, the KPPU may exercise its investigation powers under the Anti-Monopoly Law. These include the ability to: summon the company engaged in the merger or acquisition for testimony; summon expert and/or other witnesses; and examine documentation and other materials relevant to the KPPU's investigation and/or assessment.
While the New Regulation only provides for administrative sanctions in the event of failure to notify a relevant merger, it is important to bear in mind that in the event KPPU finds a contravention by the company of the Anti-Monopoly Law, its powers under the Anti-Monopoly Law are significantly greater. The KPPU can impose the following sanctions, amongst others, relevant to merger control: revocation of agreements relating to merger, acquisition or consolidation; impose an order to pay compensation and/or impose an order to pay fine of minimum Rp. 1 billion (approx US$110,000) and maximum Rp. 25 billion (approx US$2.8 million).
Expected Effects of the New Regulation in Practice
The abrupt change of direction from the January 2010 proposals
is somewhat surprising - the proposed mandatory pre-merger
notification process was regarded by many as aiming to provide an
increased level of legal certainty to prospective mergers, and
thereby helping to avoid a recurrence of the Carrefour and Temasek
cases (as discussed in the last OMM alert on Indonesian merger
control developments). Nevertheless, in terms of the 90 business
days assessment period, the New Regulation will at least reduce the
risk of such merger transactions being open to challenge by the
KPPU for many years after completion.
While the New Regulation allows notifying parties to make a voluntary pre-merger notification application to the KPPU, the reliability and usefulness of the pre-merger notification process in itself remains questionable. This is particularly true in view of the non-binding nature of the pre-merger notification process, which is unlikely to provide the legal certainty which most merger parties would seek. Consequently, it appears that going forward, the pre-merger notification process will be likely to continue to be under-utilized in practice.
1. Government Regulation No. 57 of 2010 on Merger, Consolidation and Acquisition which may Result in Monopolistic Practices and Unfair Business Competition
2. Articles 28(3) and 29(2) of Law No. 5 of 1999 on the
Prohibition of Monopolistic Practices and Unfair Business
O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.