The Indonesian merger control regime adopts a mandatory post-merger notification system whereby all mergers that satisfy the statutory threshold and certain criteria shall be notified to KPPU within 30 working days of the transaction becoming legally effective. KPPU outlines three transactions that are subject to the Indonesian merger control rules: mergers, consolidation, and the acquisition of shares (hereinafter collectively referred to as 'mergers').
In general, the criteria for notifiable mergers under Indonesian merger control are as follows:
- The transaction satisfies the statutory threshold, which is:
- the combined sales value in Indonesia of the merging parties (buyer and target) exceeds 5 trillion rupiah; or
- the combined assets value in Indonesia of the merging parties (buyer and target) exceeds 2.5 trillion rupiah. If both of the merging parties are banks, the combined assets values shall exceed 20 trillion rupiah. If only one of the merging parties is a bank, it shall adhere to the asset value threshold of 2.5 trillion rupiah.
As for foreign mergers, two additional criteria need to be satisfied:
- The target company in the transaction is a foreign company.
- The transaction has a direct impact on the Indonesian market. The Indonesian merger control rule provides alternative schemes that may indicate potential direct impact:
- all the merging parties have business activities in Indonesia either directly or indirectly, for instance, through a subsidiary or subsidiaries in Indonesia;
- one of the merging parties has business activities in Indonesia while the other party or parties have sales to Indonesia; or
- one of the merging parties (target company) has business activities in Indonesia and the other party or parties (acquiring company) have no business activities in Indonesia but have a sister company or companies that have business activities in Indonesia.
Since the enactment of the regulation of Indonesian merger control in 2010, KPPU has never issued any opinion with objections. An opinion will be issued only if there is any alleged potential of anticompetitive impact resulting from the merger. To date, KPPU has only issued no objection opinions with or without remedies. Based on publicly available opinions, to date KPPU has issued around nine no objection opinions with remedies. One of the recent high-profile conditional no objection opinions is the acquisition of shares of Vinythai Public Company Ltd (Vinythai) by Asahi Glass Company Ltd (Asahi). Asahi is a Japanese company that engages in the production of glass, electronic chemicals and ceramics. Meanwhile Vinythai as the target company is domiciled in Thailand and engages in the manufacture of polyvinyl chloride (PVC) and epichlorohydrin which are mostly used in the plastic industries.
In its assessment, KPPU only focuses on one type of PVC product sold by Vinythai in Indonesia, namely suspension PVC (S-PVC). S-PVC is used for the production of pipes, film and sheets, floors, bottles, cables, etc. In its opinion, KPPU found that one of Asahi's subsidiaries in Indonesia was the market leader in PVC with a market share of more than 50 per cent. This resulted in a significant increase in the Hirschman-Herfindahl Index (HHI) for this transaction particularly on the S-PVC market. KPPU then continued the assessment on this transaction to Phase II (comprehensive assessment) as the HHI was higher than 1,800.
Based on KPPU's Phase II assessment, there was a significant structural barrier for the S-PVC market in Indonesia. KPPU also found that based on upward pricing pressure (UPP) analysis, this transaction could put significant pressure on the domestic price of S-PVC. The result from the efficiency test also showed that the potential efficiency of this transaction may not lead to a price decrease to one of the merging party.
Considering the above analysis, KPPU decided to issue a no objection opinion towards this transaction with the following conditions:
- Asahi should report their production, sales and price of S-PVC in Indonesia to KPPU on a quarterly basis for the next three years; and
- Vinythai should report its export and price of S-PVC to Indonesia on a quarterly basis for the next three years.
The above conditions were imposed by KPPU on the merging parties to prevent the acquisition from resulting in anticompetitive effects.
In addition, to date there have been 16 decisions issued by KPPU related to the failure to notify mergers. Among these 16 cases, KPPU imposed penalties on 14 transactions. As for the remaining two cases, KPPU decided that the merging parties in those transactions were not proven guilty for the failure to notify allegation. Thus far there is only one foreign transaction that has been sanctioned by KPPU due to failure to notify, which is the share acquisition of Woongjin Chemical Co by Toray Advanced Material Korea Inc.
In 2016, KPPU imposed the highest fine ever in a failure to notify case in the amount of 8 billion rupiah on LG International Corp for submitting the notification of the share acquisition of PT Binsar Natorang Energi 20 working days past the deadline.
Currently KPPU is quite active in carrying out merger control investigations in Indonesia. During 2018, KPPU issued eight decisions or half of the total number of all decisions on the failure to notify cases. All of the issued decisions relate to domestic transactions.
One of the significant cases on merger control enforcement in 2018 is the decision of the late notification of PT Erajaya Swasembada, Tbk (Erajaya), an Indonesian company engaged in the mobile phone import industry. Erajaya was alleged to have notified its acquisition of PT Axioo International Indonesia (Axioo), an Indonesian company in the mobile phone manufacturing industry, 145 working days late. Even though Erajaya was found to have notified the transaction late, KPPU did not impose any sanction on Erajaya, considering that its acquisition over Axioo was conducted in order to comply with the requirement under the Ministry of Trade Regulation which obliges mobile phone distributors to have a manufacturing facility in Indonesia.ii Trends, developments and strategies
In 2018, KPPU received 74 notifications of mergers. There was a decrease in the number of mergers notified to KPPU in 2018 compared with 2017, which amounted to 90 transactions. According to KPPU, this might be for two reasons: the lack of awareness of the undertaking to submit the notification to KPPU; and a significant decrease in the number of corporate actions, especially merger transactions.
Furthermore, 97.3 per cent of the notified transactions in 2018 were share acquisitions. The remaining 2.7 per cent of notified transactions were merger transactions. However, there were no consolidation transactions submitted to KPPU during 2018.
Based on KPPU's website, 14 out of 74 notifications were foreign-to-foreign transactions. Japan, Singapore and United States are listed as the top three countries that notified the most transactions to KPPU in 2018.
In general, the most notified mergers related to the manufacturing industry (35.4 per cent), the energy sector (17 per cent), and the property sector (14 per cent). There were several mega transactions whose values exceeded 1,000 trillion rupiah notified to KPPU in 2018, which, among others, include:
- the acquisition of PT Freeport Indonesia by PT Inalum;
- the merger between KWA Investment Co and Monsanto Company;
- the acquisition of PT Bank Danamon, Tbk by MUFG Bank Ltd; and
- the acquisition of TMF Orange Holding BV by Saphire Bidco BV.
One of the key points in the amendment of the ICL related to the merger control issue is the change from a mandatory post-merger notification to a pre-merger notification regime. Based on certain publicly available sources, there is also a proposal to increase the notification threshold as well as increase the penalties imposed for any breaches of the Indonesian merger control rules. Furthermore, there is also a discussion related to the deadline of KPPU assessment. Some sources have confirmed that the assessment period for any notified transactions to KPPU will be changed from 90 working days to 25 working days. The discussion on such amendments is still ongoing between the government and the parliament to date. Unfortunately, there has been no clear deadline set by the parliament on when the amendment to the ICL will be enacted.