SSEK Legal Consultants partner Fahrul S. Yusuf and Michael S. Carl, a senior foreign legal advisor at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to Public Mergers and Acquisitions. SSEK is one of the top M&A law firms in Indonesia, as ranked by leading independent legal directories including Chambers & Partners, IFLR1000, Legal 500 and Asia Law & Practice.
The following is an excerpt from Public Mergers and Acquisitions in Indonesia.
What due diligence enquiries does a bidder generally make before making a recommended bid and a hostile bid? What information is in the public domain?
Indonesian law does not recognize the terms recommended bid and hostile bid. There are no specific requirements or procedures for due diligence before acquiring an Indonesian public 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, the due diligence will cover the following:
- Corporate organisation and general information.
- Compliance with general and industry-specific licensing and reporting requirements.
- Compliance with capital markets reporting requirements.
- Assets owned and leased, including real estate.
- Material agreements, including third party contracts, commitments and miscellaneous agreements.
- Litigation and claims.
- Employees, including key employees.
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 OJK Rule No. XI.C.1 regarding Insider Securities Transactions which are not Prohibited.
OJK Rule No. XI.C.1 requires 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.
Not all information regarding a public company is publicly available. Under OJK Regulation No. II.A.1 regarding Publicly Available Documents, the following documents can be made available to the public through the Capital Market Information Centre:
- All documents in connection with the registration statement of a public company, including the prospectus, information memorandum and other related documents.
- Annual and financial reports of a public company.
- Other required reports, including:
- the appointment of a corporate secretary;
- allocations of securities;
- any public disclosure that must be announced to the public;
- public disclosures in connection with certain shareholders;
- reports in connection with conflict of interest transactions;
- reports in connection with material transactions;
- announcement and disclosure of bonus shares issued by a public company; and
- resolutions of the general meeting of shareholders.
The above information can be found on the Indonesia Stock Exchange website (www.idx.co.id). S
ecrecy Are there any rules on maintaining secrecy until the bid is made?
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 shares must be purchased by the buyer 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 is made. If an announcement is not made, the 90-day period will be calculated backward from the date of the closing (that is, the date on which the acquisition is effective). To the extent 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.
Agreements with shareholders Is it common to obtain a memorandum of understanding or undertaking from key shareholders to sell their shares? If so, are there any disclosure requirements or other restrictions on the nature or terms of the agreement?
It is common practice to enter into a memorandum of understanding with key shareholders and public disclosure of the memorandum of understanding is not required. However, it may become necessary to later disclose the key terms of the memorandum of understanding to the Indonesian Financial Services Authority (OJK). This is typically the case when the buyer must demonstrate to the OJK that there will be no change of control occurring from the transaction and that a Mandatory Tender Offer will therefore not be necessary.
Stakebuilding If the bidder decides to build a stake in the target (either through a direct shareholding or by using derivatives) before announcing the bid, what disclosure requirements, restrictions or timetables apply?
In general, a disclosure obligation arises in relation to an interest in securities when an investor reaches 5% of outstanding shares in an Indonesian public company. Once the 5% threshold is reached, any transfer of shares (provided the ownership is still above 5%) must be reported to the Financial Services Authority (OJK).
If the shareholding ownership drops below 5%, the decrease of ownership (for example, the ownership changing from more than 5% to less than 5%) must be reported, after which no reporting is necessary for any transfer of shares (provided the ownership remains less than 5%).
In addition, rules from the Indonesia Stock Exchange (IDX) require public companies listed on the IDX to make public any information relating to investors owning 5% or more of the shares in that public company (available on the IDX website). The disclosure must be made no later than ten calendar days after the obligation arises by reason of an acquisition or disposition of shares.
Shareholders owning more than 5% of the shares in a public company are identified on the IDX website. There is no disclosure requirement when the stakebuilding is carried out using derivatives (for example, put/call options). The disclosure obligation will instead arise on the exercise/conversion of the derivatives to shares in the company.
Agreements in recommended bids If the board of the target company recommends a bid, is it common to have a formal agreement between the bidder and target? If so, what are the main issues that are likely to be covered in the agreement? To what extent can a target board agree not to solicit or recommend other offers?
Most public companies in Indonesia are controlled by a single majority shareholder who initiates a share sale transaction leading to a change of control that results in a Mandatory Tender Offer. In these cases, there is no agreement between the bidder and the target: only between the seller and the buyer of the transacted shares. An agreement between the bidder and the target only arises if:
- The acquisition involves a subscription for new shares in a rights offering.
- The bidder acts as a standby purchaser of shares not subscribed by the existing shareholders.
In limited circumstances, Financial Services Authority regulations can require share subscriptions to be carried out by rights offerings to existing shareholders, in which a third-party purchaser known as a standby purchaser must agree to purchase any shares not subscribed by existing shareholders. In this situation, the public company and the standby purchaser will enter into a Declaratory Undertaking and Standby Buying Agreement (Pernyataan Kesanggupan Pengambilan Bagian Saham Dan Perjanjian Pembelian Sisa Saham) (Standby Buying Agreement) under which the standby purchaser agrees to subscribe for all rights issue shares not taken up by the existing shareholders.
It is not possible for the board of directors of a target public company in Indonesia to initiate or formally recommend a bid to either:
- An existing shareholder.
- A third party.
In the case of a Voluntary Tender Offer (VTO), the offer is initiated by the buying investor, not the target company. There is also no formal procedure for the board of directors to recommend for or against the VTO.
Break fees Is it common on a recommended bid for the target, or the bidder, to agree to pay a break fee if the bid is not successful?
Break fee provisions are not common in Indonesia, although they are permissible.
Committed funding Is committed funding required before announcing an offer?
Committed funding is required before announcing an offer. A party conducting a Voluntary Tender Offer (VTO) must prepare 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. In practice, although not expressly required under any regulation, the same also applies to Mandatory Tender Offers.
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