By Ira A. Eddymurthy and Fahrul S. Yusuf
For acquiring/selling non-public or public companies, the process will generally take around three to six months, starting from the term-sheet negotiation stage, continuing with due diligence, share purchase agreement negotiation, conditions fulfilment and closing. The process will generally take twice as long if the acquisition is made through a rights subscription over a public target entity, where a general meeting of shareholders to obtain their approval must be convened.
Mandatory Offer Threshold
There is no mandatory offer threshold applicable to mergers or acquisitions involving non-public companies.
For public companies, a mandatory tender offer (MTO) is generally required following a change of control arising from an acquisition of shares either from an incumbent shareholder or if the change of control arises from the subscription for newly issued shares in a rights offering (unless exempted under certain conditions).
A change of control is generally deemed to occur where either more than 50% of shares in the public company are acquired or, if less than 50%, there is an effective change of control over the management, or policy-making in the company.
If the acquisition is by subscription for newly issued shares issued by the non-public target company, the consideration must be either cash or in-kind. In a direct acquisition from an existing shareholder, the consideration can be in the form of cash or shares in another company. Subscription to new rights issued by public companies can only be made in cash.
Common Conditions for a Takeover Offer
A new controller of a public company is obliged to make an MTO to the remaining minority shareholders, as a result of it acquiring a controlling stake from an existing controller of the public company. In the case of an MTO, conditions for offer are generally as prescribed by law.
Other means of obtaining control include mergers and voluntary tender offers (VTOs). However, given the regulatory and procedural complexities that a merger will entail (particularly when it involves a public company), mergers are quite rare except where they occur for regulatory purposes in the banking and insurance sectors. VTOs are also rare and are more often used by a controlling shareholder to take a public company private and delist, in addition to acquiring a controlling stake.
Minimum Acceptance Conditions
There is no minimum acceptance condition for MTOs, since bidders are required to make the offer after they acquire a controlling stake and attain control of the company. In other words, they are required to buy the shares from each of the minority shareholders participating in the offer, which means a minimum acceptance condition is irrelevant.
There may be a minimum requirement in a VTO context, depending on whether the offeror wishes to have the public target delisted from the stock exchange and make it a private company. If the offeror does wish to do so, the Financial Services Authority (Otoritas Jasa Keuangan or OJK) will typically allow the going-private to happen if there are fewer than 50 remaining shareholders.
Requirement to Obtain Financing
Many buyers in M&A settings require third-party financing to acquire shares in a target company. It is permitted and common for the buyer and seller to agree that the transaction will close only once the buyer has secured proper financing. This is particularly important if the acquisition involves a publicly listed target, in which the buyer may need to make an MTO following the acquisition, which will require the buyer to have the necessary financial capability.
Committed funding is also required before announcing an offer in a VTO context. A party conducting a VTO must submit a statement on the availability of funds to settle the VTO, which must be supported by an opinion from the accountant, bank or securities company involved.
Types of Deal Security Measures
Deal security measures, such as break fees, are not common in Indonesia, although they are permitted. In smaller deals involving individual local vendors, some will require break fees, which are typically half the cost of lawyers‚Äô fees and other related expenses they may have incurred.
Additional Governance Rights
A controller does not have to own 100% of a target company to control it. A shareholder owning more than 75% of shares would have the requisite voting power to adopt any corporate actions that are subject to shareholder approval under the Company Law.
In general, resolutions of a general meeting of shareholders (GMS) are adopted by consensus. Failing which, a resolution must be approved by more than one half of the shares in attendance or represented, except for the following corporate actions, which require higher thresholds:
- amendment to the articles of association, which must be approved at a meeting at which at least two thirds of the company\'s voting shares are represented and at least two thirds of the shares in attendance approve the resolution; and
- a merger, consolidation, acquisition, bankruptcy and/or dissolution of the company, as well as the transfer or pledge of the company\'s assets as security for a loan that comprise more than 50% of the company\'s net assets in one or more related or unrelated transactions (this must be approved at a GMS at which at least three quarters of the company\'s voting shares are represented and at least three quarters of the shares in attendance approve the resolution).
Additional governance rights, other than the above, can still be agreed between the shareholders in a shareholders‚Äô agreement or even in the articles of association, by specifying certain reserved matters on which unanimous approval is required or by creating a class of shares that provide specific rights to certain shareholders.
Voting by Proxy
In general, under the Indonesian Company Law one share bears one vote and each share is issued under the name of its holder. The Company Law does not allow the issue of bearer shares.
Despite the above, it is possible for a shareholder to give proxy to another party to attend a shareholders‚Äô meeting and cast his or her vote on the shareholder\'s behalf.
The OJK as of this writing has never issued clear-cut guidelines for acquiring an Indonesian publicly listed company and then delisting it and taking it private. The OJK normally issues a \"letter‚Äù to the prospective controller specifying the procedures and requirements on a case-by-case basis.
In general, the delisting itself requires GMS approval and the OJK\'s \"no objection‚Äù toward a tender offer statement being submitted by the company.
In the most recent examples, the OJK has also required that the going private:
- is approved by independent shareholders (simple majority vote, attended by more than 75% of independent shareholders with voting rights); and
- follows the procedures of a VTO towards all the shares in the public company, be it the founding shares or the public shares.
The delisting and the going-private are only effective once the aforementioned requirements have been fulfilled and the total number of the company\'s shareholders is fewer than 50 parties.
It is expected that all public shareholders would sell their shares during the one-month tender offer period at the price offered by the prospective buyer. In general, the price for the tender offer is required to be higher than the average of the highest daily trading price at the stock exchange for the last 90 days before the tender offer announcement is made. Once the tender offer process has been concluded and it results in the total number of shareholders dropping below 50, the company may proceed to change its status to a private company.
If the target of having fewer than 50 shareholders is not achieved, the company may not proceed with going private and the tender offer process may need to be repeated, subject to a ruling by the OJK, and this may involve an increase in the offering price. The process can be tricky and may come down to chasing individual shareholders to convince them to \"participate‚Äù in the tender offer process.
Once the going-private becomes effective any shareholders who did not participate in the tender offer process will remain as shareholders of company. To fulfil the requirement of the Company Law, Article 62, which essentially gives shareholders the right to have their shares bought by the company if they think they are suffering losses due to a certain corporate action of the company, any shareholders who did not approve the going-private may request the company to buy their shares at a fair price (as determined by an appointed independent appraiser) and the company is required to do so.
When negotiating or signing a conditional share purchase agreement, it is permissible and common to secure a commitment from the incumbent controller of the target company, especially if the transaction requires approval from shareholders and the securing of a minimum number of affirmative votes to close the deal.
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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