By Ira A. Eddymurthy and Fahrul S. Yusuf
There is no requirement to disclose a deal when acquiring a non-public company, other than announcing the transaction publicly through a nationally circulated newspaper before the buyer and the seller can close the transaction.
In terms of public company acquisitions, a prospective controller can announce that it is in negotiations with the seller in a nationally circulated newspaper. This announcement is typically made if the buyer anticipates an increase in the price of the public company\'s shares, which will affect the minimum price at which the buyer must purchase the shares during any subsequent mandatory tender offer (MTO) process.
Once the negotiation process is announced, a 90-day period for determining the MTO price is locked, starting backward from the date on which the announcement was made. If an announcement is not made, the 90-day period will be calculated backward from the date of the closing (ie, the date on which the acquisition is effective).
To the extent that the prospective controller decides not to disclose to the public information resulting from the negotiations, the parties involved must keep confidential the information that results from the negotiations.
Market Practice on Timing
Generally, Indonesian market practice is that the timing of disclosure is made according to the requirements prescribed in law.
Scope of Due Diligence
There are no specific requirements or procedures for due diligence before acquiring a company. However, it is common and best practice for a bidder to perform due diligence on the target company before proceeding with an acquisition.
In practice, due diligence will cover the following:
- corporate organization and general information;
- compliance with general and industry-specific licensing and reporting requirements;
- assets owned and leased, including real estate;
- material agreements, including third-party contracts, commitments, and miscellaneous agreements;
- litigation and claims; and
- employees, including key employees.
In the case of public companies, the selling shareholder, being the incumbent controller of the public company, is considered an insider and therefore any sale of shares by that shareholder is subject to applicable rules concerning insiders. The insider rules require any selling shareholder and the buying party to enter into a confidentiality agreement, under which the buying party undertakes that any information received (including information from the due diligence process) will be kept confidential and will not be used for any purpose other than a securities transaction with the insider/selling shareholder.
Standstills or Exclusivity
During the early stage of deals (eg, term-sheet negotiation, due diligence), it is very common that a sole bidder or offeror demands exclusivity, typically lasting for three to six months from the signing of a term sheet or memorandum of understanding.
In the case of public company acquisitions, a prospective buyer of the shares may agree with the seller on certain terms related to the MTO in the share purchase agreement. It is relatively uncommon, but in certain cases the buyer may need a commitment from the seller to support the buyer in fulfilling his or her sell-down/re-float requirement following the MTO that it conducts after the takeover.
The Financial Services Authority (Otoritas Jasa Keuangan or OJK) regulation on public company takeovers requires a re-float obligation that follows a takeover and MTO, which obligation, if the new controller holds shares in excess of 80% of a public company that were acquired through the MTO, requires the new controller to sell down to 80% within two years of the MTO and retain a minimum public float.
This first appeared in the Chambers Corporate M&A 2020 global guide, published by Chambers and Partners. You can find the full chapter here.
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