Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Merger Control volume discussing topics including enforcement priorities, evidence review and notable cases within key jurisdictions worldwide.

1 What are the key developments in the past year in merger control in your jurisdiction?

In terms of merger control, it is important to highlight that the Indonesia Competition Commission (KPPU) has the jurisdiction to assess both the onshore and offshore transactions. According to the merger control provisions of Law No. 5 of 1999 on the Prohibition of Monopolistic and Unfair Business Practices (the Indonesian Competition Law: ICL) and the KPPU’s regulation on merger control, the KPPU adopts the mandatory post-merger notification (generally known as the Notification) and voluntary pre-merger notification (generally known as the Consultation) regimes. Thus, business must notify the KPPU regarding their transactions that meet certain criteria, within 30 working days of the transactions becoming legally effective. Otherwise, the KPPU is authorised to launch a formal investigation and examination on such failure to notify, and, according to Government Regulation No. 57 of 2010 regarding Mergers or Consolidations of a Business Entity and Acquisitions of Company Shares that May Result in Monopolistic Practices and Unfair Business Competition in conjunction with the Indonesia Competition Commission, to impose an administration fine of 1 billion to 25 billion rupiahs to undertakings liable for filing.

Regarding the maximum fine, it is worth noting that Law No. 11 of 2020 on Job Creation (the Omnibus Law), which was enacted on 2 November 2020, has revoked the cap on fines for competition law violation but retained the minimum fine of 1 billion rupiahs. The Omnibus Law is unclear on whether failure to notify the KPPU would also be subject to this new fine scheme. Nevertheless, we are of the view that the maximum fine of failure to notify to the KPPU should still be 25 billion rupiahs as stipulated by GR No. 57 of 2020 since the Omnibus Law does not specifically attend to it. However, the KPPU may take the view that it can now potentially impose a sky high fine for any violation of the ICL, which may also include failure to notify the KPPU. Therefore, we believe that the provision on the legal maximum fine of 25 billion rupiahs, as stipulated under the 2019 Merger Regulation, is still applicable unless the implementing regulations will also remove the 25 billion rupiahs cap for late notification.

Another noteworthy remark is that, on 3 October 2019, the KPPU issued KPPU Regulation No. 3 of 2019 on Assessment of Merger or Consolidation of Business Entities or Share Acquisition of Companies that could Result in Monopolistic and/or Unfair Business Competition Practices (Indonesian Merger Regulation 2019/IMR2019). And around a year later, in October 2020, the KPPU issued the implementing guidelines on merger, consolidation, or acquisition that was in force in 6 October 2020 (the New Merger Guidelines). Altogether we will refer these two products as the Indonesian Merger Regulation and Guidelines (IMRG).

To provide a fuller context, prior to the implementation of the IMRG, the KPPU could only oversee domestic and overseas shares-based transactions. However, the KPPU also understood that asset acquisition could also affect the competition landscape in Indonesia. The IMRG features the mandatory notification of asset acquisitions to the KPPU. This means that after escaping scrutiny by the KPPU, asset acquisition is finally receiving the same treatment as share acquisition.

With 67.56 per cent more notification received in 2019 compared to 2018, the KPPU was significantly busier with merger control in 2019. This significant increase year-on-year might well be down to the implementation of the IMR2019. Although most of the notifications (86 out of 124) were submitted by Indonesian companies, the KPPU in its annual reports noted that the remaining 38 notifications were filed by companies from 11 countries in the Asia, Europe, and American continents. For the sectoral performance, the processing industry was the most active sector in merger control notification in 2019, followed by energy, mining and excavation, and the banking and non-banking finance industry. From the available data on the KPPU’s website, as it was in 2018, businesses still focus more on strengthening their core. However, we have also seen some improvement on businesses entering into the adjacent market

Similar to past years, the above information does not fully represent the actual corporate actions in Indonesia, since the current merger control neither includes the newly estabished joint venture nor the transaction that does not meet statutory thresholds of 5 trillion rupiahs of combined Indonesian turnover or 2.5 trillion rupiahs of combined global assets.

Still adopting the same approach as for several previous years, the KPPU does not focus on any specific industries, but on individual transactions. When the KPPU becomes aware of a particular transaction, either one that is high-profile or the ones that are heavily exposed by media, it may send a letter to the parties to remind them that there is a legal obligation for them to notify that transaction to the KPPU. The parties are expected to respond to such letter from the KPPU at the earliest possible opportunity.

From the submission made in 2019, there were 12 late merger notification cases that had been decided by the KPPU. One of the notable late merger notification cases is related to the shares acquisition of PT Indo Putra Kathulistiwa (IPK) by PT Matahari Pontianak Indah Mall (MPIM). In its decision, the KPPU found that the transaction was legally effective on 30 August 2017. However, it was submitted to the KPPU on 18 December 2018. Therefore, the KPPU concluded that the shares acquisition of IPK by MPIM was one year, two months and seven days days past due. Considering this, the KPPU then imposed a fine of 12.6 billion rupiahs to MPIM. This sets a record as the highest fine imposed by the KPPU for late notification cases.

Another notable late merger notification case is related to the shares acquisition of PT Mitra Barito Gemilang (MBG) by PT Astra Agro Lestari (AAL). In its decision, the KPPU concluded that MBG was not guilty of the alleged violation of article 29 of the ICL The MBG acquisition was legally effective on 5 December 2016, but was submitted to the KPPU on 26 August 2019. Thus, this transaction was 634 business days past due since the submission deadline passed. However, the KPPU concluded that the acquisition of MBG by AAL was performed by affiliated companies and thus is not subject to mandatory post-closing notification to the KPPU.

2 Have there been any developments that impact how you advise clients about merger clearance?

The New Merger Guidelines now confirm that an asset acquisition that satisfies one of the criteria below would not trigger the mandatory notification post-acquisition to the KPPU:

  • the value of the asset acquisition is below 250 billion rupiahs (for non-banking industries) or 2.5 trillion rupiahs (for banking industry);
  • the asset acquisition is part of the purchaser’s ordinary course of business;
  • for businesses in the real property industry, the asset acquired is intended to be used as an office by the purchaser or as a social or public facility; or
  • the asset acquired is not related to the purchaser’s business activity, for example, the asset is acquired as partof the purchaser’s corporate social responsibility or non-profit activities.

Under the New Merger Guidelines, either the KPPU or the notifying party can request for a simplified assessment if, among others:

  • the parties are not engaged in overlapping or vertically related markets, or if they are, the HHI value after the transaction falls within a certain range;
  • the relevant parties to the transaction are engaged in overlapping markets and the HHI value after the transaction is:
    • less than 1,500 (Spectrum I);
    • between 1,500 and 2,500 with increased HHI (also known as delta HHI) of less than or equal to 250; or
    • over 2,500 with increased HHI of less than or equal to 150;
  • the relevant parties to the transaction are engaged in vertically related markets in which the HHI value of each market is within the Spectrum I;
  • the parties cannot engage in tying, bundling, or other practices that may result in a network effect;
  • the merger notification is submitted within 30 business days from the date when the transaction becomes effective; or
  • the merger results in a change of control in the target from being jointly controlled by the acquirer and the previous shareholders to being solely controlled by the acquirer.

The simplified assessment will last for a maximum of 14 business days from when the KPPU concludes that the notification is eligible for such process.

The IMR2019 also confirms the assurance of the period of the notification procedure that brings the total notification procedure to a maximum of 150 business days until the issuance of the KPPU’s determination of the transaction. This is a huge incentive for businesses to comply even more strongly with the merger control provisions, particularly if we compare the notification procedure that lasted up to one to two years from the submission to the KPPU.

Nevertheless, the parties must note that the KPPU can now reject any incomplete filing upfront. This means the parties should not file their Notification at the last minute in order to mitigate the potential refusal from the KPPU (due to it being incomplete) and failure to notify the KPPU in due course. Through the IMR2019, the KPPU also opens the possibility for electronic filing from October 2019. This is one of the KPPU’s breakthrough, particularly considering the sudden pandemic outbreak these past few months.

Particulary on this electronic filing, amid the covid-19 outbreak in Indonesia, the KPPU further issued a policy that requires notifying parties to submit their notification through electronic media in soft copies. Nevertheless, hard-copy versions of the notification documents will have to be submitted to the KPPU after the covid-19 virus spread prevention protocol has been officially declared as ended by the government of Indonesia.

3 Do recent cases or settlements suggest any changes in merger enforcement priorities in your jurisdiction?

The KPPU does not focus on one particular industry. The KPPU observes mergers and acquisitions, in search of high-profile transactions that involve public exposure. Based on our experience, the KPPU gives more attention to transactions involving overlapping relevant markets, in particular if the markets are highly concentrated, or vertically integrated markets where the parties have a dominant position at any level of production. Their interest in these transactions can be seen from the multiple requests for information documents sent to the notifying party, which usually relate to requests and queries about the market data. Additionally, it is worth noting that the KPPU is an independent institution and is therefore free from any political interest.

In 2019, 21 new cases were registered and there were 17 ongoing cases regarding late merger notification in the KPPU. Considering that Indonesia adopts mandatory post-merger notification regimes, the undertaking must notify the KPPU regarding their transactions that meet certain notification criteria, within 30 business days of each transaction being legally effective. In the case of late notification, the KPPU is authorised to initiate a formal investigation and examination on such failure to notify, and to impose fines for 1 billion rupiahs per day with maximum fines of 25 billion rupiahs, depending on the delays accumulated.

With regard to the implementation of the ICL, the undertaking should consider the following recent precedents on cases of failure to notify the KPPU in 2019. The first case is the shares acquisition of IPK by MPIM (First Case); and the second case is the shares acquisition of PT Nusantara Infrastructure, Tbk by PT Metro Pasific Tollways Indonesia (Second Case).

The transaction value in the First Case is 90 million rupiahs and the notification of such transaction was 240 business days past due. The KPPU then imposed a 12.6 billion rupiahs penalty on MPIM. Currently, this case is being appealed in the District Court and awaits the judges’ decision on whether the KPPU’s decision is corroborated or denied.

However, in the Second Case, the transaction value is 2 billion rupiahs and the notification was 278 business days late. This means that the Second Case is 1.1 billion rupiahs more valuable and 38 days more delayed compared to the First Case. However, the KPPU only imposed fines of 1.063 billion rupiahs in the Second Case, a significantly lesser penalty than the First Case. These precedents illustrate the importance of submitting a notifiable transaction to the KPPU within the 30-business-days time frame regardless of how much the value of such transaction is, and that there is no expiration period for the KPPU to scrutinise any alleged violation of the ICL.

Despite the covid-19 pandemic, the KPPU nonetheless strives to implement the ICL. One example of this regards businesses that imposed excessive pricing and caused scarcity by taking advantage of the pandemic situation. The industries that are being highlighted are the staple, medical devices and energy industries. On another note, the KPPU has also commenced an investigation on the price increase of surgical masks and rapid test bundling cases in several hospitals during the pandemic situation. Although those are not merger-related cases, this may suggest that public-interest issues are taking on increased importance for the KPPU.

Moreover, to maintain the efficacy of the ICL, the KPPU continues to conduct proceedings to handle, in particular, the existing cases prior to the pandemic situation. As an effort to adapt to the pandemic circumstances, case-handling is now governed by the newly-issued KPPU Regulation No. 1 of 2020 regarding Electronic Case Handling. As a result, the proceedings can be conducted through email correspondence and videoconferencing, if needed.

Are there any trends in merger challenges, settlements or remedies that have emerged over the past year? Any notable deals that have been blocked or cleared subject to conditions?

It is worth noting that the KPPU cannot prohibit or block an undertaking from executing a transaction, since Indonesia adopts a mandatory post-closing notification regime. However, the KPPU can issue a determination, stating either:

  • the absence of alleged monopolistic practices or unfair business competition resulting from the merger, consolidation or acquisition of company shares or assets; or
  • alleged monopolistic practices or unfair business competition resulting from the merger, consolidation or acquisition of company shares or assets.

If the KPPU has any competition concerns as a result of the transaction, it may issue a conditional approval to the parties, in the form of a structural or behavioural remedy (a Conditional Approval). If the parties agree to the Conditional Approval, the KPPU will start monitoring the implementation of the Conditional Approval. On the contrary, if the parties do not respond or disregard the Conditional Approval, the KPPU will initiate an investigation on the alleged violation of article 28 of the Indonesian Competition Law.

Based on the publicly available merger database published on the KPPU website, to date, we have not found any KPPU determinations with Conditional Approval in 2019. The latest Conditional Approval given by the KPPU in its opinion was in 2018, which is in the notification for the shares acquisition of Vinythai Public Company Ltd (Vinythai) by Asahi Glass Company Ltd (Asahi). In its assessment, the KPPU focused on the S-PVC product as the relevant market between the merging parties. S-PVC is used in sheets, floors, bottles, cables, etc.

During the assessment, the KPPU found a significant increase of HHI on the S-PVC market, since one of Asahi’s subsidiaries in Indonesia is a market leader in the PVC market with more than 50 per cent market share. Given that the HHI is higher than 1,800, the KPPU then continued the assessment process of this transaction to Phase II (comprehensive assessment).

Further, the KPPU also found that the potential efficiency gain from this acquisition may not lead to a price decrease for one of the merging parties. Therefore, the KPPU issued a remedy in the form of a Conditional Approval to prevent this acquisition resulting in anti-competitive effect ,which consisted of the following:

  • Asahi should report their production, sales and price of S-PVC in Indonesia to the KPPU every quarter for the next three years; and
  • Vinythai should report their exports and price of S-PVC to Indonesia every quarter for the next three years.

4 Have the authorities released any key studies or guidelines or announced other significant changes that impact merger control in your jurisdiction in the past year?

Aside from several issues discussed above regarding the issuance of the long-awaited New Merger Guidelines, the KPPU has confirmed its intention to assess any transaction that is equivalent to the shares acquisition. Acquisitions that are treated equally to share acquisitions include, but are not limited to, transfer of assets and acquisition of participating interest.

Further, the KPPU has clarified that the value of acquired assets as part of the threshold calculation is calculated based on either the value of the target asset as stated in the latest financial statements of the seller or the transaction value, whichever is higher.

Additionally, the New Merger Guidelines revise the relevant party’s determination of a joint venture (JV) transaction. The New Merger Guidelines introduce that the KPPU will consider the JV as the ultimate parent entity of its group. As a consequence, the calculation of threshold and local nexus test for such a JV will only take into account Indonesian sales, worldwide value of assets and local presence of the JV and its subsidiaries. This approach will also be applied in a transaction where the acquirer is a JV’s subsidiary. This new provision will also significantly change the list of relevant parties in a merger where a JV is involved.

It is worth noting that the New Merger Guidelines still clearly express that creation of a newly established JV (a greenfield JV) is exempted from notification obligation. And as it has always been, creation of a JV via share or asset acquisition still triggers a notification obligation to the KPPU if all the notification criteria are met.

In addition, article 23 of IMR2019 introduces that the local nexus criterion of a foreign merger is met if all or one of the parties involved in the merger, consolidation or acquisition of shares or assets has business in or sales originating from Indonesia. Further, the New Merger Guidelines state that a foreign merger will have domestic impact on the Indonesian market and, accordingly, fulfil the local nexus test if, among other things, one of the parties has business activities in Indonesia while the other party does not have business activities in Indonesia but has sister companies that have business activities or sales in Indonesia. Accordingly, by strictly looking into the wordings of the New Merger Guidelines, the domestic impact criterion under the New Merger Guidelines do not rule out the previous local nexus test under article 23 of IMR2019, which requires only the local presence of either party.

5 Do you expect any significant changes to merger control rules? How could that change your client advocacy before the authorities? What changes would you like to see implemented in your jurisdiction?

One of the proposed amendments to the merger control rules is related to the change from mandatory post-closing notification to pre-closing notification. The proposed amendment is planned to be stipulated in the amendment of the Indonesian Competition Law. However, it remains unclear when the proposed changes to the merger control regime will be implemented, since the amendment of the Indonesian Competition Law is no longer listed in the 2020 Prioritized National Legislation Programme.

The Inside Track

What should a prospective client consider when contemplating a complex, multi-jurisdictional transaction?

When dealing with a complex multi-jurisdictional transaction, we suggest that the client carefully assess whether or not such transaction is exempted or considered a non-notifiable transaction. If this is unclear, the parties can minimise risk by making the filing under simplified procedure or assessment and providing all the complete documents, information, including the market data required for preparing Notification to the KPPU, as it would not register and assess an incomplete notification.

Nevertheless, as Indonesia adopts mandatory post-notification, there is no waiting period or suspension of the completion of a transaction prior to the issuance of the ‘clearance’ opinion of KPPU. Thus, the parties can close their transaction before the ‘clearance’ opinion of KPPU.

In your experience, what makes a difference in obtaining clearance quickly?

Under the new guideline, the KPPU finally acknowledges the simplified merger notification procedure. The guideline regulates that the KPPU must complete this simplified assessment within 14 business days, which is a significantly shorter time frame compared to the maximum 150 business days of the traditional merger notification process. Based on our experience, providing the KPPU with clear and complete information may expedite the process.

What merger control issues did you observe in the past year that surprised you?

On 3 October 2019, IMR2019 took effect. Under this regulation, KPPU asserts authority over asset acquisition that was not enforced under previous regulation. Further, IMR2019 also specifies that foreign-to-foreign transactions can still be subject to mandatory notification even if the target company or one of the parties to the transaction is offshore and has no business in Indonesia, provided that the acquiring company group or other party to the transaction has business in Indonesia (single nexus). This approach deviates from the previous regulation which requires existence of both parties’ presence in Indonesia (double nexus). After a new guideline was issued on 6 October 2020, unfortunately the local nexus criterion above was not revised or further explained. Thus, if one of the parties has business activity or sales in Indonesia it can still be subject to notification in Indonesia.