The Indonesian Government issued its new Mandatory Post-Merger Notification Regulation (the "Regulation") in July 2010.1 More recently, in order to provide further clarification on the Regulation, the Indonesian Business Competition Supervisory Commission (the "KPPU") released guidelines discussing the procedural and substantive aspects of the new post-merger notification regime (the "Guidelines").2 The 37-page Guidelines provide much needed clarification on the scope and applicability of the Regulation.
The Guidelines clarify that the notification thresholds contained in the Regulation relate to the value of sales made and assets located in Indonesia. In the case of mergers among foreign companies outside of Indonesia, the Guidelines clarify that the KPPU has jurisdiction over the transactions if they have an effect on the Indonesian market. For example, a transaction could have an effect on the Indonesian market when only one party conducts business in Indonesia, and the other party's Indonesian activity is limited to import sales.
Pre-merger Consultations Encouraged
While the Regulation requires the mandatory submission of a merger notification to the KPPU after the transaction closes, the Guidelines recommend that merging parties undertake a voluntary consultation and notification to the KPPU prior to the close of the proposed merger. The purpose of the pre-merger consultation is to provide the merging parties with more certainty regarding their transaction and thereby minimize the potential losses that may occur if the KPPU later decides that the transaction should be rejected/annulled. The decision ultimately reached through the pre-merger consultation process does not bind the KPPU to any decision at the post-merger stage, and the KPPU has the right to re-evaluate the transaction after the parties file the mandatory post-merger notification. However, the Guidelines explain that in practice, the KPPU will normally only re-evaluate a transaction at the post-merger stage when there have been changes in the transaction's data or structure or in market conditions, and highlight the fact that the KPPU expects to engage in only one review per transaction in the majority of cases.
The Guidelines do not establish whether the KPPU could prevent merging parties from completing a proposed transaction prior to the conclusion of a pre-merger consultation. Because the KPPU has self-proclaimed that it is an "evaluation and analysis agency" as opposed to a "permit" agency, it is unlikely that the pre-merger consultation period would be suspensory in practice. Nevertheless, it would certainly be prudent for parties who have commenced a pre-merger consultation to wait until the end of the initial phase of the consultation before completing the proposed transaction.
Similarly, the Guidelines do not establish whether information and related details of the transaction discussed during the pre-merger consultation process may be publically disclosed. However, the KPPU has informally stated that any such information and details will be kept confidential. In circumstances where the merging parties submit data that appears to be wrong, misleading, or incomplete, the KPPU may obtain information from other market players in order to correct or clarify the data that has been provided to the Commission. In practice, companies often approach the KPPU during the pre-merger notification phase in two separate steps: (i) to have an initial discussion in person regarding the proposed transaction - at which stage the KPPU will request supporting data on the transaction; and (ii) to apply for a pre-merger consultation with the KPPU and respond in writing to the KPPU's request for supporting data.
To apply for a voluntary pre-merger consultation, merging parties submit a completed pre-merger consultation notification form to the KPPU. The Guidelines explain that the consultation process is divided into two separate phases. During the first phase, which lasts 30 working days, the KPPU must complete its initial evaluation. During the second phase, which lasts an additional 60 working days and only commences when the initial evaluation period is insufficient, the KPPU engages in a more comprehensive evaluation of the proposed transaction.3 As explained above, the Guidelines do not indicate whether initiating a pre-merger consultation suspends the parties ability to complete the transaction. However, it would certainly be prudent for parties to wait until the end of the initial 30 working day period before completing the proposed transaction.
At the conclusion of the pre-merger consultation, the KPPU may issue one of three possible outcomes: (i) the transaction presents no indication of monopolistic practices and unfair business competition; (ii) the transaction presents an indication of monopolistic practices and unfair business competition; or (iii) the transaction presents no indication of monopolistic practices and unfair business competition, but the merging parties must meet certain requirements in order to complete the transaction. Where the KPPU establishes requirements that the parties must meet before completing the transaction, the KPPU will monitor the parties compliance with the requirements. The KPPU will undertake an additional evaluation after the transaction closes to ensure that the merging parties have fulfilled the requirements.
In addition, the merging parties are obliged to notify the KPPU within 30 working days of completing the merger. The post-merger notification itself is similar to the pre-merger consultation notification, but requires additional approval by the Minister of Law and Human Rights. The Guidelines state that the KPPU must complete its post-merger review within 90 working days.
At the conclusion of the post-merger review, the KPPU may issue one of two possible outcomes: (i) there is no indication of monopolistic practices and unfair business competition as a result of the transaction, resulting in a "no objection" letter; or (ii) there is an indication of monopolistic practices and unfair business competition as a result of the transaction, resulting in an "objection" letter.
After the KPPU issues its merger decision, the merging parties have the right under the Indonesian Anti-Monopoly Law4 to lodge an appeal to the District Court, (and thereafter if unsuccessful, the Supreme Court of the Republic of Indonesia), within 14 days of receiving the decision.
The Indonesian Anti-Monopoly Law aims to provide an equal opportunity to all market players to participate in the production and marketing of goods and services within a healthy business climate, with the effectiveness and efficiency of the business climate stimulating economic development. Consequently, the law deems that unfair competition and the concentration of economic power within certain businesses should be prevented for the greater good of society.
In terms of merger control, the KPPU applies the goals of the Anti-Monopoly Law to its substantive review of notifiable merger transactions. The Guidelines set out a detailed explanation of the five main elements of the KPPU's substantive assessment of proposed mergers:
- evaluation of the "market concentration" of the products or services provided by the merging parties;
- assessment of "entry barriers" to the relevant market;
- evaluation of the "anti-competitive behaviour" element, including unilateral effects, coordinated effects and market foreclosure;
- analysis of any "efficiencies" gained from the merger (in comparison to any anti-competitive effects); and, where applicable,
- analysis of the "failing firm defence," where one of the merging parties would likely go bankrupt absent the transaction.
The Regulation outlines the penalties for failure to provide the KPPU with notification of a completed merger within 30 working days. These penalties include the imposition of administrative fines up to Rp. 25 billion. Penalties imposed on foreign companies will be imposed on their Indonesian subsidiaries.
Further, under the Indonesian Anti-Monopoly Law, the KPPU can order companies to annul or unwind a transaction that results in monopolistic practices and unfair business competition and potentially impose criminal penalties (fines up to Rp. 100 billion or 6 months imprisonment). These criminal penalties were already set out in the Indonesian Anti-Monopoly Law which came into effect in 1999. Unfortunately, the new Regulation and Guidelines do not provide any comfort to merging parties who comply with the new mandatory post-merger notification requirements. Criminal penalties may still be imposed on parties who comply with the notification requirements, but nevertheless complete a transaction that results in monopolistic practices and/or unfair business competition pursuant to Articles 27 and 28 of the Indonesian Anti-Monopoly Law.
The Guidelines certainly achieve the objectives of providing more detailed clarification and explanation of the applicable rules and procedures relevant to the Regulation and the merger provisions contained in the Indonesian Anti-Monopoly Law. The Guidelines offer significant value to the merger review process by providing additional certainty to merging parties through a fully-explained voluntary pre-merger consultation procedure and mandatory post-merger notification procedure. The Guidelines are more robust than the Regulation and contain helpful flow-charts to simplify the concept of the various notification processes and timelines.
How useful the Guidelines will ultimately be in practice for merging parties, and the extent to which they will be reflected in the KPPU's merger decisions and practice, will become apparent over the coming year. As discussed above, the Guidelines would benefit from some further clarification. Additionally, an English translation of the Guidelines from Indonesian would certainly be welcomed as a supplement to the English-language version of the Regulation, particularly by merging parties outside of Indonesia whose transactions potentially fall within the KPPU's merger review jurisdiction.
1. Government Regulation No. 57 of 2010 on Mergers, Consolidations and Acquisitions Which May Result in Monopolistic Practices and Unfair Business Competition. See OMM Alert "Merger Control in Indonesia - The New Merger Notification Regulation" at http://www.omm.com/merger-control-in-indonesia---the-new-merger-notification-regulation-08-09-2010.
2. KPPU Regulation No. 13 of 2010, Guidelines on Mergers, Consolidations and Acquisitions that May Result in Monopolistic Practices and Unfair Business Competition.
3. According to the KPPU, the Commission has not so far engaged in a pre-merger consultation that has gone beyond the initial 30 day evaluation, but each analysis will be carried out on a case-by-case basis.
4. Indonesian Anti-monopoly Law, No. 5 of 1999.
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.
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