Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
The legal basis for merger control in Indonesia is Law No. 5 of 1999 on the Prohibition of Monopoly and Unfair Business Competition Practices (the Competition Law), in particular articles 28 and 29. Article 28 prohibits mergers, consolidations and acquisitions of shares (mergers) that may result in a monopoly or unfair business practices. On the other hand, article 29 provides that mergers that result in combined assets, sales or both, exceeding certain thresholds as set forth under government regulation, shall be notified to the Indonesian Competition Commission (KPPU), an independent agency established for the enforcement of the Competition Law.
In July 2010, the Indonesian government finally promulgated Government Regulation No. 57 of 2010 on Mergers, Consolidations and Acquisitions of Shares that May Result in Monopoly or Unfair Business Competition Practices (the Government Regulation), which provides more specific provisions regarding merger control in Indonesia. The Government Regulation provides criteria for the prohibited mergers and thresholds for notification as well as other issues concerning the enforcement of merger rules and reiterates the mandate given by the Competition Law to the KPPU to carry out and supervise the enforcement of merger control rules in Indonesia. Following the enactment of the Government Regulation, the KPPU has adopted four commission regulations related to merger control:
- Commission Regulation No. 10 of 2010 on the Form of Post-Merger Notification (Commission Regulation 10/2010);
- Commission Regulation No. 11 of 2010 on Pre-Merger Notification;
- Commission Regulation No. 02 of 2013 on the Third Amendment of Guidelines of Mergers, Consolidations and Acquisition (Commission Regulation 02/2013), which supersedes Commission Regulation No. 13 of 2010 on the Guidelines of Mergers, Consolidations and Acquisition; and
- Commission Regulation No. 04/2012 on Guidelines for the Imposition of Fines for Delay in Notifying Mergers, Consolidations and Acquisitions of Shares (Commission Regulation 04/2012).
What kinds of mergers are caught?
The Competition Law, along with its Government Regulation and Commission Regulation 02/2013, stipulates particular transactions that shall be notified to, and examined by, the KPPU. The consolidation or merger of two or more previously independent undertakings (non-affiliates), and the acquisition by one or more companies, directly or indirectly, of the shares of another company, and joint ventures by way of share transactions resulting in a change or transfer of control are the transactions that fall within the jurisdiction of the KPPU. Therefore, the assets-based transaction shall not in any way be deemed as a notifiable one under the current merger control. According to the Government Regulation, consolidation refers to a legal action whereby two or more undertakings combined by establishing a new undertaking that by law receives the assets and liabilities from the consolidating undertakings and as a result of which the consolidating undertakings are dissolved. Further, merger refers to a legal action undertaken by one or more undertakings to merge with another existing undertaking, resulting in the assets and liabilities of the merging undertakings being transferred by law to the merged company and the other merging undertakings then being dissolved; and the acquisition of shares refers to a legal action taken by an undertaking to acquire shares of a company, which may result in a change of control of the acquired company. Although basically the KPPU calls only for share-based transactions to be notified, the most current trend, especially in foreign merger cases, indicates that the KPPU has moved forward to also apply the notification obligation to non-share-based transactions but those that have similarities with share-based transactions, such as in capital interest or membership interest transactions. Thus, the KPPU will examine transactions on a case-by-case basis and may use its power as stipulated in the relevant legislation.
What types of joint ventures are caught?
Commission Regulation 02/2013 defines joint ventures as business activities of two or more companies in establishing a new company whereby each of the initial companies has equal control in the newly established company. It then requires the founding companies to jointly bear the risk and capital investment as well as place representatives as directors in the new company. If the establishment of a joint venture results from a transfer of shares or an acquisition of actual control of related undertakings, then this joint venture may be caught by the merger control regulations. A recent example of creation of a notifiable joint venture is the shares acquisition of Global Mines Company Pte Ltd (GMC) by KOG Investments Pte Ltd (KOGI), which was notified to the KPPU on 4 October 2013. In its opinion, the KPPU was of the view that shares acquisition of GMC by KOGI had resulted in GMC being jointly controlled by KOGI and its previous owner, Clariant Participations Ltd.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
As set out in the Government Regulation, control would be presumed to exist when there is an ownership of more than 50 per cent of shares or voting rights of a particular company or where the ownership only involves 50 per cent or less but may still be able to influence and determine the management and policy of the company. However, there are no clear criteria on what kind of situation would be deemed as ‘able to influence or determine management policy’, and therefore it would be determined on a case-by-case basis by the KPPU. An example of the application of this rule is the acquisition of shares of Asuransi Dharma Bangsa, an insurance company, by AXA SA, which was notified to the KPPU in November 2011. In this case, AXA SA only acquired a 40 per cent share of Asuransi Dharma Bangsa and the other 60 per cent share was acquired by Bank Mandiri, an Indonesian state-owned bank. Even though AXA SA is only a minority shareholder, it was considered by the KPPU as having control over Asuransi Dharma Bangsa because it has the power to nominate two out of three of the directors of Asuransi Dharma Bangsa. It is also likely to have more control over Asuransi Dharma Bangsa than Bank Mandiri owing to its core competence in the insurance industry compared to Bank Mandiri, which has core competence in the banking industry. Thus, regardless of the number of shares or equivalent, so long as they allow the holder to influence or determine the management or policies of the acquired company, the KPPU will generally consider it as having control over the target or acquired company.
Another interesting example of the application of this rule is the acquisition of shares of PT Mobile 8 Telecom, Tbk (Mobile 8), an Indonesian company engaging in telecommunication service, by PT Wahana Inti Nusantara (WIN) in 2011. In this transaction, WIN acquired 24.05 per cent of shares in Mobile 8. This transaction has resulted in 62 per cent of Mobile 8’s shares being acquired by the Consortium, which consist of WIN (24.05 per cent), PT Global Nusa Data (GND) (20.84 per cent) and PT Bali Media Telekomunikasi (BMT) (18.70 per cent). Meanwhile, the remaining 38 per cent is owned by three other shareholders and the public. Because WIN is the leader of the Consortium, WIN has control over the other Mobile 8’s shareholders, which are GND and BMT. Thus, the KPPU in its opinion concludes that WIN is considered to have control over Mobile 8 even though WIN is not the majority shareholder after the transaction.Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
The Government Regulation applies two alternative jurisdictional thresholds in merger control, calculated on a nationwide basis. A merger can and shall be notified to the KPPU if it meets one or both of the following thresholds:
- the asset value of the merged entity exceeds 2.5 trillion rupiah; or
- the turnover of the merged entity exceeds 5 trillion rupiah.
However, if all the parties to the transaction (both acquiring and target companies) are banks, only the asset value shall apply, and the threshold shall be when the combined national asset value exceeds 20 trillion rupiah. If only one of the transacting parties is a bank, it shall adhere to the asset value threshold of 2.5 trillion rupiah.
The nationwide turnover or assets are determined based on the calculation of assets located in Indonesia or turnover from Indonesia (of the merged party).
There is no specific rule to calculate group assets or turnover as the calculation is simply based on the cumulative assets or turnover of the undertakings within the group. For a part-owned subsidiary, the calculation of thresholds covers all the assets or turnover of the subsidiary. This calculation shall be based generally on the latest financial year of audited financial reports of the relevant parties. If the calculation of assets or turnover of the latest year is significantly different (more than 30 per cent) from that of the preceding year, the combined turnover shall then be determined based on the average turnover of its audited financial statements for the previous three years. As only national turnover is taken into account, revenue deriving from export activities (outbound Indonesia) should be excluded from the calculation.
A single party’s assets or turnover could trigger notification as the asset value or turnover of the merged entity. This implies that the source of the assets or turnover is not an important issue.
Despite the assessment on the threshold, the KPPU may and can still open an investigation into the transaction, once it considers that the transaction may lead to anticompetitive effects within the Indonesian market.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
The Competition Law requires all mergers that meet the thresholds and criteria (see question 2 for more detailed criteria) to be notified to the KPPU despite the fact that:
- the transaction value is insignificant;
- the resulting market share of combined entity is insignificant;
- there is no overlapping market arising from the transaction;
- there is no anticompetitive concern that might arise because of the transaction;
- the transaction shall not lessen competition in any way, in any potentially affected relevant market;
- there is no vertically related market arising from the transaction;
- the sales value is insignificant and negligible, yet the assets have met the statutory threshold; and
- the asset value is insignificant and negligible, yet the sales value has met the threshold.
The Government Regulation has adopted two systems for notification. The first is voluntary pre-merger notification, which is also known as consultation, in which a merger can be voluntarily notified to the KPPU before it is completed or legally effective. Although the pre-merger notification is voluntary in nature, the KPPU keenly urges undertakings to go through the pre-merger notification or consultation so as to, on the one hand, minimise the risk or losses if the KPPU concludes that the merger is likely to be in violation of the Competition Law, and on the other hand accelerate the process of the compulsory post-merger notification as the KPPU will not re-evaluate a completed merger if it has been notified under a pre-merger notification, provided that there are no substantial changes in data or the market following the completion of the merger. The second is known as mandatory post-merger notification, in which all mergers, having met the threshold and criteria, are required to be notified within 30 working days after the transaction is completed or legally effective. This post-merger notification is mandatory although the merging parties have already participated in the pre-merger notification.
The importance of participating in the pre-merger notification or consultation process is high, as the KPPU has advised that non-share-based transactions may still be required to be notified.
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
In its guidelines, the KPPU has emphasised that it essentially has the jurisdiction to control any merger that affects competitive conditions in the Indonesian (domestic) market. The KPPU thus asserts that it has the authority to review a merger concluded between two or more foreign companies (foreign merger) where the target company is a foreign company (foreign merger), taking into account the effectiveness of such enforcement.
A foreign merger shall be notified post-closing to the KPPU where it satisfies all five criteria below:
- the merger is conducted outside Indonesian jurisdiction or the target company is a foreign company;
- the specified threshold is met;
- the merger is between or among non-affiliates;
- the merger has a direct impact to the Indonesian market (local effects test); and
- the merger is a share-based transaction (or other transaction that is similar to or has a similar impact to a share-based transaction) that results in change of control.
Particularly for ‘direct impact on the Indonesian market’ criterion, the KPPU provides alternative schemes that may indicate potential direct impact, as follows:
- all merging parties have business activities in Indonesia, either directly or indirectly (eg, through a subsidiary or subsidiaries);
- one of the merging parties has business activities in Indonesia but the other party (or parties) sells to Indonesia; or
- one of the merging parties has business activity in Indonesia while the other party (or parties) does not have activity, but has a sister company or companies having business activity in Indonesia.
Are there also rules on foreign investment, special sectors or other relevant approvals?
The Competition Law, including its implementing regulations, applies to all business activities in Indonesia, except for those specifically exempted in the Competition Law (ie, small businesses and cooperatives). On the other hand, there are specific rules on mergers in separate regulations applicable to foreign investment or certain sectors. For example, in the finance and banking sectors, some mergers must also be notified and subject to approval from the Ministry of Finance or the Indonesian Central Bank or the Indonesia Financial Services Authority. In the oil and gas upstream sector, approval from the Ministry of Oil and Gas is needed for mergers that involve Indonesian undertakings engaged in upstream activity in Indonesia. Those specific rules, however, are not enforced by the KPPU.
Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
There is no provision concerning the deadline for filing a pre-merger notification, and accordingly, no sanction applies. A post-merger notification, on the other hand, has to be made within 30 working days of the date on which the merger becomes legally effective. For a merger involving an Indonesian limited liability company, the definition of ‘legally effective’ refers to the following alternative conditions:
- approval by the Minister of Justice and Human Rights upon the amendment of the articles of association, in case of a merger;
- receipt by the Minister on notification for particular amendments; or
legalisation by the Minister upon the deed of establishment of the company, in case of a consolidation.
In general, notification shall be made within 30 working days of the closing date. In a merger between foreign companies, the merged entity needs to provide an official document indicating that the merger has been completed. Where there are no official documents released by the relevant authority, the KPPU may accept other documents such as a statement letter stamped and signed by an authorised representative of the merged party indicating the completed merger. This alternative option is subject to change and solely at the KPPU’s discretion.
If the merged party fails to meet the deadline, according to the Commission Regulation 02/2013, the KPPU may impose fines in the amount of 1 billion rupiah per day commencing after 30 working days, with a maximum fine of 25 billion rupiah. To date, there have been fifteen decisions issued in relation to the failure to notify a merger. Under Commission Decision No. 08/KPPU-M/2012, the KPPU decided that the notification made by PT Bumi Kencana Eka Sejahtera was still in good time for notification, as the calculated cut-off date was the date of Acceptance Letter of the Change of Data of PT Andalan Satria Lestari. Meanwhile, the KPPU imposed a 4.6 billion rupiah fine on PT Mitra Pinasthika Mustika (MPM) as it notified the merger only after 62 days had elapsed since completion of the merger. MPM should have been fined the maximum amount, but in consideration of its good cooperation with the KPPU and the KPPU’s intention to make this case an example to other businesses, the KPPU reduced the amount of the penalty imposed.
Although the KPPU has made the MPM case an example to undertakings failing to notify the merger, it still found four violations on the post-closing notification submission during 2013 and 2014 alone. The first is the case of PT Muarabungo Plantation’s (MP) acquisition of PT Tandan Abadi Mandiri, where the notification was submitted 76 days after the closing. In that regard, MP was fined 1.249 billion rupiah. Secondly, the acquisition of PT Subafood Pangan Jaya by PT Balaraja Bisco Paloma (BBP) was notified 43 working days after the transaction completed, thus the KPPU imposed a 5 billion rupiah fine on BBP as the acquiring party. Third, a 1 billion rupiah fine was imposed on PT Dunia Pangan for its failure to notify its acquisition of PT Sukses Abadi Karya Inti within the 30-working-day requirement. And in the fourth, although PT Tiara Marga Trakindo (TMM) participated in the pre-merger notification (consultation), it was fined 1 billion rupiah for submitting the mandatory post-merger notification of its acquisition of PT HD Finance, Tbk (HF) 41 working days after closing. In the TMM/HF acquisition case, the KPPU also emphasised that participation in pre-merger notification does not exclude the obligation of the acquiring party to properly notify the transaction post-closing.
In 2016, the KPPU imposed fines on two more transactions because of failure to notify. In the acquisition of Woongjin Chemical Co (WCC) by Toray Advanced Material Korea Inc (TAMK), the KPPU imposed 2 billion rupiah fines on TAMK for submitting the notification four days past the deadline. This has been a landmark case as the TAMK/WCC case was the first precedent of KPPU imposing fines on a foreign company for failure to notify. Later on in 2016, the KPPU imposed an 8 billion rupiah fine, the highest so far, to LG International Corp (LG) for submitting the notification of its acquisition of PT Binsar Natorang Energi 20 working days past the deadline.
In March 2018, the KPPU fined the following two companies for their late notifications on the below transactions:
- PT Plaza Indonesia Realty, Tbk was fined 1 billion rupiah for its late notification on the acquisition of PT Citra Asri Property (Plaza Indonesia/Citra Asri). The combined assets and sales of the parties exceeded the statutory thresholds. However, the notification was only made to KPPU on 13 May 2016. Therefore, it was 345 days past due according to the KPPU press release. This sets the record for longest period of failure to notify to date; and
- PT Nirvana Property was fined 1 billion rupiah for its late notification on the acquisition of PT Mutiara Mitra Bersama (Nirvana Property/Mutiara Mitra). The transaction was legally effective on 29 December 2015, but was notified to KPPU on 7 October 2016. Therefore, according to the KPPU press release, the notification was 161 days late.
Afterwards, KPPU scrutinised five more companies until the end of 2018 and fined four of them, including PT Japfa Comfeed Indonesia Tbk (Japfa) with 3.7 billion rupiah, for its late notification on the acquisition of PT Multi Makanan Permai. Despite the insignificant transaction value, which only amounted to 483 million rupiah, the combined assets and sales of the parties still exceeded the statutory thresholds. The transaction was legally effective on 27 April 2015 but was notified to KPPU on 19 September 2016. Therefore, it was 310 days past due according to the KPPU decision and represents the second longest period of failure to notify to date. At the end of 2018, Japfa filed an appeal to the district court against the KPPU decision and received a fine reduction of 1.7 billion rupiah from the district court.
The one company that was scrutinised by KPPU because of its alleged late notification but was not declared as violating the Competition Law and thus not fined by KPPU in 2018 was PT Erajaya Swasembada, Tbk (Erajaya) when it acquired 51 per cent shares of PT Axioo International Indonesia (Axioo). According to the KPPU decision, the notification was submitted 145 days after the initial deadline on 7 July 2015. However, Erajaya was acquitted of all charges and fines as KPPU was of the view that the acquisition was exempted from the notifiable transaction, as it was conducted based on a regulation that required certain importers to have certain business activities in Indonesia.
We believe the number of companies that are fined will continue to increase because we understand that the KPPU is in the process of investigating other late notification cases.
Which parties are responsible for filing and are filing fees required?
In pre-merger notification, the merging parties (under a consolidation or merger scheme) are responsible for notifying the KPPU, while in shares acquisitions, the responsibility lies with the acquiring party. The KPPU, however, has highlighted that each firm shall keep confidential information from each other or parties in a pre-merger notification owing to the possibility that the deal may be called off. In that regard, when performing a consultation on the proposed transaction, the KPPU provides the possibility for each party to submit the data and information separately, although the pre-merger notification form must be submitted together or at the same time by the notifying party or parties. As in post-merger notification, it is the remaining entity that is responsible for filing or the acquiring party in case of an acquisition. To date, and in accordance with the applicable regulations, there are no fees required for filing.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
As the Competition Law adopts mandatory post-merger notification, it does not include provisions on waiting periods or the suspension of the completion of a transaction prior to the issuance of an opinion of the KPPU.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
As the Competition Law only requires notification on which the KPPU will issue an opinion, which does not constitute clearance or approval, and as notification prior to the closing of a transaction (pre-merger consultation) is essentially voluntary, no sanctions apply with regard to obligation to notify.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Because foreign merger control rules generally mirror the domestic rule, no sanctions for closing before clearance apply with regard to obligation to notify.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
Not applicable.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
The applicable regulations do not make special provisions for criteria of notifiable public takeovers. Thus, the general rules on merger control shall also apply to public takeovers. There is only one specific criterion relating to the closing date or legally effective date of a public takeover that is considered, which is since the public disclosure of the takeover of the listed company.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
There are two types of form for filing purposes: one is for the pre-merger notification and the other is for the post-merger. Each type is available for three different transactions: merger, consolidation and share acquisition. The pre-merger notification forms are: merger transaction (form M2), consolidation transaction (form K2) and share acquisition transaction (form A2); and the post-merger notification forms are: merger transaction (form M1), consolidation transaction (form K1) and share acquisition transaction (form A1). These forms are available online and can be downloaded from the KPPU’s website (www.kppu.go.id).
Upon completion, these forms shall be submitted to the KPPU to meet administrative requirements. The information required is general in nature and consists of basic information on the related parties. Currently, information required for a filing includes, but is not limited to:
- the identity of the merging parties, which consists of information on the name, address, members of the board of commissioners, members of the board of directors, shareholders and their shares and voting rights percentages and the value of sales and assets for the last three years prior to the merger;
- the identity of the parent company and companies under the control of the parent company, which includes information on the name and value of sales and assets prior to the merger;
- general information on the merging parties’ products, consisting of information on the brand names, product category, market share and product description;
- profile of competitors, consumers, and suppliers of the merging parties, including information on the names, addresses, brand names, market shares and product descriptions;
- a summary of the transaction, which covers the background, process and expected goals of the transaction;
- business plan for the next three years, explaining the commercial or business policies of the merging parties, the position of the merging parties as a group in the industry, along with the competition map of the industry in which the parties operate; and
- industry or market data containing the data and information of market share of the merging parties and the competitors in the industry or industries in which the parties are operating.
The submission of industry or market data is important, as failure to provide such information will mean that the notification requirement is not complete and the KPPU shall not proceed to the assessment process. In its guidelines, the KPPU has pointed out that it has the power to request further information from the merging parties or their affiliates as it deems necessary for the assessment of the transaction.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
Once a notification is filed, the KPPU generally will commence by examining the notification form as well as the supporting documents. The KPPU may require more information or additional documents as it may deem necessary.
In pre-merger notification or consultation, the process consists of two phases: Phase I and II. Phase I (preliminary assessment) shall begin only if KPPU declares that documents and data submitted by the parties are complete (documents completion declaration). In other words, KPPU must first make the documents completion declaration before proceeding with the preliminary assessment period. According to current merger control, there is no firm timeline regulating how long the KPPU may take in assessing the documents completion and issuing the documents completion declaration accordingly, The KPPU will define the relevant market or markets and measure market concentration in Phase I. If the post-merger concentration or position of the merging parties does not raise competition concerns, the KPPU will issue its opinion without entering into Phase II. This process will last for a maximum of 30 working days. On the other hand, the KPPU will continue to Phase II (comprehensive assessment) if there is overlap between the business of the relevant parties creating an ex-post Herfindahl-Hirschman Index (HHI) higher than 1,800 and a delta exceeding 150, or there is a vertical (business) link between relevant parties to the transaction holding a dominant position in the market. This comprehensive assessment will last for a maximum of 60 working days following the end of the preliminary assessment. During the Phase II process, the KPPU will generally examine entry barriers, possible anticompetitive effects, efficiencies put forward by the merging parties, and possible bankruptcy defences. The submission of remedies proposals by the merging undertakings shall also take place in this phase. Although the KPPU issues this documents completion declaration, the KPPU may still request further additional information or documents to the parties of transaction or any other stakeholders throughout the overall assessment process.
Under the post-merger notification scheme, the merged entity is obliged to notify the KPPU within 30 working days of completion of the merger. As it is with the pre-merger notification or consultation, the KPPU will only commence its assessment after it issues the documents completion declaration. The post-merger notification assessment consists of only one phase that will last for a maximum of 90 working days before an opinion on the merger is issued. The substantive test will be similar to that of the pre-merger notification. The KPPU may request additional request for information or documents throughout this post-merger notification assessment phase.
The participation in the voluntary pre-merger notification does not make the parties free from the post-merger notification obligation. However, if the merging parties undertook a pre-merger notification and an opinion of the KPPU for that process has been issued before the merger is completed, there will be no reassessment when the merger is notified following the completion. Reassessment will only be conducted if there are material changes to data or market condition, such as:
- there is a reduction of the number of undertakings in a highly concentrated market (Spectrum II, see question 19) causing the HHI to change by more than 500;
- there are changes to the post-merger business plan; or
- the predicted post-HHI during a pre-merger notification is below 1,800, but after recalculation in the post-merger review it is above 1,800.
Other than the documents completion declaration, all the time frames mentioned above are maximum periods that cannot be extended in any case.
During the assessment process, either in pre-merger notification or post-merger notification, the KPPU may, and usually will, invite the merging parties to meet and clarify information and documents that have been submitted to them. For this clarification meeting, the KPPU will provide the parties with the list of questions to be discussed and clarified. In addition, the KPPU may require the parties to submit a summary of notification (SON). The SON’s objective is to summarise all relevant facts (which have usually been provided to the KPPU in the notification bundle) needed by the KPPU to assess the transaction. Basically, it is not a compulsory document that shall be submitted but it would help the KPPU to expedite the assessment process, particularly in identifying relevant facts needed for their assessment. The KPPU does not set any specific deadline for submitting the SON.
What is the statutory timetable for clearance? Can it be speeded up?
Commission Regulation 02/2013 only prescribes the maximum period for the KPPU to complete its assessment and therefore the assessment process may be completed earlier than the maximum statutory period (see question 17 for a more detailed time frame). However, as mentioned in question 17 above, the assessment process will only be started by the KPPU if all requested documents and information have been provided and the KPPU has issued a documents completion declaration. As there is no provision governing the timeline for the KPPU issuing the documents completion declaration, the periods to obtain the completeness status from the KPPU vary and depend on, among others, the nature or complexity of the transaction and the sufficiency of information provided by the parties, as well as the number of notified transactions being reviewed by the KPPU.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
The Competition Law prohibits mergers that would create a monopoly or would likely result in conditions that facilitate unfair business practices, and as a result would cause harm to consumers. The review will involve, at the very least, an evaluation of market concentration, barriers to entry, potential anticompetitive effects, efficiencies and the possibility of the failing firm defence.
In general, the KPPU will begin its assessment by measuring the market concentration following the merger. The KPPU usually uses HHI to measure concentration. However, if the available data cannot be used to calculate HHI, the KPPU will use other concentration measures such as concentration ratios. Essentially, the KPPU divides post-merger HHI into two spectrums: Spectrum I (low concentration, with HHI below 1,800) and Spectrum II (high concentration, with HHI above 1,800). The KPPU will only identify horizontal competition concerns if the post-merger HHI falls within Spectrum II and the delta is more than 150 points. With regard to vertical mergers, there will be no competition concerns if none of the merging parties has a dominant position. The KPPU will not continue with a comprehensive assessment if this condition is satisfied.
Aside from calculating the market concentration index, the KPPU will assess the barrier to entry from regulatory and non-regulatory ones, such as the technical or economics reasons. When the barrier to entry is low, the KPPU will consider a merger leading to a control of significant market shares by the merged entity as unlikely to cause any anticompetitive effect because there will be sufficient competitive pressure from undertakings entering the market following the merger. On the other hand, the KPPU will consider a merger as likely to cause an anticompetitive effect even if the merged entity only possesses moderate market shares if the barrier to entry is high. In determining whether entry will deter or counteract the anticompetitive effects resulting from a merger, the KPPU will not only take into account the likelihood of entry, but also its sufficiency and timelines. However, there is no further explanation by the KPPU of these elements. For example, the KPPU never explains what would be considered an appropriate time period or the scope and magnitude of entry that would be considered to be sufficient to decide that entry is easy.
The KPPU may find that a horizontal merger will result in a monopoly or unfair business competition if the merger causes coordinated or unilateral effects or a vertical merger results in a monopoly or unfair business practices if the merger leads to market foreclosure.
If the goal of a merger is the creation of or an increase in efficiency, the KPPU will then evaluate the expected efficiency and the benefit consumers will obtain from such efficiency. The KPPU will undertake an in-depth investigation over any claimed efficiency proposed by the merging parties. During its assessment, the KPPU will compare the efficiency with the anticompetitive effects of the merger. If the anticompetitive effects will likely outweigh the efficiency, the KPPU will generally choose promoting fair competition in preference to encouraging the improvement of efficiency. In the KPPU’s view, a competitive market structure will directly or indirectly lead to the creation of an efficient undertaking in the market.
If an undertaking makes a decision to merge with another undertaking to prevent their business from ceasing to operate (ie, avoiding bankruptcy) the KPPU will generally assess whether consumers will be more harmed by the bankruptcy than the impact of the merger on competition. When consumer loss caused by the exit of the failing undertaking from the market is higher than the anticompetitive effects, the KPPU will decide not to challenge the merger. In performing the assessment, the KPPU will examine, among other things, whether the undertaking will not survive owing to its financial condition, whether there is the possibility of a successful reorganisation, and whether there is another alternative with fewer anticompetitive effects than the merger to protect the undertaking from bankruptcy.
Is there a special substantive test for joint ventures?
The applicable regulations do not establish a substantive test specific to joint ventures.Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
In reviewing a horizontal merger, the KPPU will consider the unilateral and coordinated effects of the merger. In the event of a merger involving undertakings from a different level of production (value added) chain (vertical merger), the KPPU will examine the foreclosure effects (input foreclosure or customer foreclosure) and the coordinated effect of a merger.Non-competition issues
To what extent are non-competition issues relevant in the review process?
There are two transactions in which the KPPU considers the sector-wise regulatory issues in reviewing mergers: the share acquisition of PT Caturmas Karsaudara (Caturmas) by PT Agung Podomoro Land Tbk (Agung Podomoro), and the share acquisition of PT Wahana Sentra Sejati (Wahana Sentra) by Agung Podomoro.
In both transactions, the KPPU concludes that there is an overlap in the trade centre market in Jakarta. Further, the KPPU also stated that the HHI’s value and Δ HHI of the share acquisition of Caturmas/Agung Podomoro and Wahana Sentra/Agung Podomoro are respectively below 1,800 and 150. However, the KPPU in its assessment was of the view that there will be a difficulty faced by any new entrants establishing a trade centre in Jakarta, owing to the issuance of the Jakarta Governor Instruction in 2014 regarding a moratorium on trade centres. This regulation has resulted in a temporary suspension of issuance permits to establish trade centres in Jakarta. Therefore, by considering this public interest issue, the KPPU subsequently issued opinions of no alleged monopoly or unfair business competition practices to both of transactions with remarks in which the KPPU monitors the trade centre market in DKI Jakarta and requires Agung Podomoro to submit outlet sales data in Harco Glodok Trade Centre along with its annual maintenance cost for five years.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
The Government Regulation has set out efficiencies as one factor that can be used by the KPPU to decide whether a merger may result in monopolistic or unfair competition practice. This provides an opportunity for undertakings to put forward the efficiencies that may arise from their merger when submitting a notification to the KPPU. The KPPU is likely to evaluate efficiencies that may arise from a merger in its comprehensive review even though competition concerns may be limited. There have been at least two opinions of which KPPU considered the quantitative approach to seek efficiency. The latest opinion describing such is as illustrated in the KPPU’s opinion of the acquisition of Vinythai Public Company Ltd (Vinythai), which was released in March 2018 (Asahi-Vinythai Opinion). In the Asahi-Vinythai Opinion, the KPPU used quantitative analysis to calculate economic efficiencies gained from the transaction. In its calculation, the KPPU is of the view that after transaction, the potential efficiency from this transaction may not lead to a price decrease to one of the merging party. Following this assessment, KPPU issued a conditional non-objection opinion that required Asahi Glass Company Ltd to regularly report their production volume, sales volume, and price information of S-PVC in Indonesia, and required the export volume and price information of S-PVC from Vinythai to Indonesia quarterly for the next three years.
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
As the current regime adopts the notification or non-clearance system, the KPPU has no power to block a merger. However, it can review and issue an opinion on a merger plan following a voluntary notification. The opinion issued prior to the merger is binding on the KPPU, but it is only as long as the plan has not been substantially changed when the merger is completed.
When the KPPU finds that a merger is objectionable, it cannot reject or block the merger, but it may open a formal investigation and decide whether or not it will order the dissolution of the merger, in case of a completed merger, or impose sanctions, such as fines or damages.Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
Once the KPPU has evaluated the proposed or complete merger under the consultation or notification scheme, if the result indicates that there is a potential substantial lessening competition arising from the merger, the KPPU may provide conditions to be fulfilled by the merging parties to comply with the Competition Law. The merging parties are given an opportunity to submit the proposed remedies to the KPPU no later than 14 working days after receiving the report, and the KPPU shall evaluate whether or not such proposed remedies may mitigate the potential anticompetitive effects. If the KPPU approves the remedies it will issue an ‘opinion of no alleged violation on condition’. On the contrary, if the KPPU declines the proposed remedies, then the opinion of the existence of the alleged monopoly practices and anticompetitive conducts arising from the merger is issued.
The proposed remedies may take the form of structural or non-structural (behavioural) remedies. There is no precedent to date on structural remedies. For this reason, it is very important for the merging parties to notify the KPPU first before proceeding with their transaction to seek the KPPU’s opinion, especially when the market is highly concentrated or the relevant parties to the transaction have a dominant position or significant market share.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
Under current regulations and precedent, there are no clear indications regarding the basic conditions and timing for a divestment or other structural remedies. Taking into account the approaches used by the KPPU in its recent decisions, we may, however, expect that the KPPU will consider and impose specific behavioural conditions as well as a timetable when it finds it necessary, depending on the complexity of the issues under review.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
There is no precedent regarding remedies in foreign-to-foreign mergers. However, there is one example of a foreign-to-foreign merger where the KPPU monitored the affected markets for a certain period of time after the merger (see question 34).Ancillary restrictions
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
The Government Regulation and its implementing regulations do not provide clear provisions on ancillary restraints. They may be relevant when considering potential unilateral effects or abuse of a dominant position.
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
Although there are no statutory rights given to customers or competitors to get involved during the review process, the KPPU is entitled to and will generally invite customers as well as competitors in its review process to provide relevant information with regard to market analysis and competition impact. Customers and competitors may also, at the KPPU’s request, submit their opinions or recommendations on the merger.Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
Information about the submission or notification of proposed or completed mergers will be made available to the public through the KPPU’s website (www.kppu.go.id). However, the KPPU will only publish the non-confidential version of the opinion. Sometimes the KPPU issues a press release informing the public about the overview of the notified transaction. When an opinion on a merger has been made, the KPPU will then issue a press release and upload the public version of the opinion or decision to its website. The opinion is only made available in the Indonesian language. As the KPPU is obliged to protect commercially confidential information acquired during its review, the KPPU will observe this obligation in its merger review process by keeping merging parties’ trade, company or commercial secrets (that it has acquired during the review process) properly secure and unavailable to the public. The KPPU will usually also provide merging parties with a draft opinion before publishing it, so that they may review the draft and request further deletion of information in the draft opinion if the information is deemed confidential. Despite this, it is imperative for the merging parties to state to the KPPU any information they consider as confidential as this would prevent the KPPU from mistakenly making public any business secrets.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
The KPPU has established several limited cooperation agreements with the Japan Fair Trade Commission, the Korea Fair Trade Commission and the US Federal Trade Commission to exchange information regarding the enforcement of competition law, including merger control. To the best of our knowledge, KPPU cooperation with other antitrust authorities is conducted sporadically, on an ad hoc basis.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
All KPPU decisions are subject to review by the district court and finally the Supreme Court. The result of mandatory post-merger and voluntary pre-merger notifications is a KPPU opinion, not a KPPU decision, thus there is no possible appeal by the undertakings directly upon the issuance of the KPPU opinion. However, if the KPPU prohibits a merger transaction by adopting a decision (in this case where the undertakings disregard the opinion (of alleged unfair practice), the KPPU will open a formal investigation and issue a decision regarding alleged violation as a result of the completed merger), the merger entity may then file an appeal to the district court against the KPPU decision. Appeals against a KPPU decision can only be brought by the merging parties. The current regime provides no possibility for third parties, such as competitors or consumers, to challenge a KPPU decision. However, currently there is no precedent on this matter.Time frame
What is the usual time frame for appeal or judicial review?
An appeal has to be filed before the competent district court within 14 days of the parties receiving the KPPU decision. In accordance with the time frame as set out in the Competition Law, the district court shall issue its ruling within 30 days of the commencement of the proceedings. A further appeal can be made to the Supreme Court within 14 days of the district court’s ruling being received by the merging parties. The time frame for this review is, by law, set at a maximum of 30 days. Unfortunately, the process in the Supreme Court, and sometimes in the district courts, is unpredictable. In many cases, it takes months before a Supreme Court, or district court decision is made. In rare cases, it can take years.
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
As of end of April 2018, the KPPU has reviewed 85 foreign mergers for the last four years. The KPPU has declared ‘no alleged unfair practice or violation’ in all its opinions. However, in the Nestlé SA/Wyeth (Hong Kong) Holding Company Ltd infant formula milk acquisition, the KPPU declared it will monitor for three years the monthly sales price and volume submitted by the Indonesian subsidiary of Nestlé/Wyeth every June and December, although the KPPU does not object to the acquisition. Monitoring only applies for the infant formula milk (below six months) and the formula milk (above one year) markets owing to the potential collusive behaviour following the acquisition. Formula milk for seven to 12-month-old babies is excluded from the monitoring process despite the market being concentrated, as the change in post-transaction concentration is insignificant.
Despite the typical steps and assessment referred to at length in question 17, the KPPU, in its opinion on the acquisition of PT Wahana Sentra Sejati by PT Agung Podomoro Land that was released in August 2016 (APL/Wahana), stated that although the APL/Wahana transaction generated the HHI’s value below 1800, the KPPU still assessed the entry barrier and potential anticompetitive conduct analysis. In the entry barrier analysis, the KPPU stated that the entry barrier to establish a trade centre in DKI Jakarta is high and the new entrants will face difficulty in entering the trade centre market. The KPPU also further stated that there are potential anticompetitive conducts owing to the transaction in the form of abuse of bargaining position to new outlet buyers with a non-competitive price, setting up high maintenance costs, and collusive agreement with other players in the trade centre market. Based on these analyses, the KPPU released an opinion of no alleged monopoly or unfair business competition practices with remarks in which the KPPU monitors the trade centre market in Jakarta and requires APL to submit outlet sales data in Harco Glodok Tradecenter along with its annual maintenance cost in five years.
In addition to the above, the KPPU is currently focusing its enforcement on and closely monitoring sectors where there are high-profile companies having market share above 50 per cent and a rigid or high price, or a shortage of supply, such as in the selling of oil and gas for retail markets, banking (owing to high lending interest rates), food and agricultural, infrastructure, as well as education and health (including pharmaceutical) sectors, sectors monopolised by state-owned companies or firms holding market share of more than 50 per cent, poor quality public services and highly regulated or concentrated markets.Reform proposals
Are there current proposals to change the legislation?
In April 2017, the Indonesian Parliament provided its approval of the draft amendment to the Competition Law and handed it to the Government of Indonesia (GoI) for further assessment or approval. The GoI will form a special working task force to assess the draft amendment to the Competition Law. Significant changes related to merger control include the change of the merger control regime to be that of mandatory pre-merger notification and that merger control shall include the assets-based transaction.
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
One of the most important cases in the context of merger control is the acquisition of Axioo by Erajaya) (see question 9). The Competition Law provides several actions, including merger, that may be exempted from the law. These exemptions include actions that are carried out based on the instruction of prevailing laws. In cartel and abuse of dominant cases, or both, the KPPU tends to take the view that the instruction must be expressly stated under the laws, and views that any instructions given under any regulations lower than law (such as government regulation or minister regulation) do not exempt the undertakings from the Competition Law. Previously, we found no precedent of this exemption in the context of merger control.
Unlike in previous precedents, in cartel or abuse of dominance cases, where the KPPU only recognised exemption based on laws, in this case, KPPU decided that Erajaya was acquitted of all charges and fines as it viewed that the acquisition was conducted based on a minister regulation or regulation lower than law. This case might have revealed how the KPPU would interpret this exemption in failure-to-notify cases, or possibly in all competition cases going forward.