Public Mergers and Acquisitions in Indonesia

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 Legal Consultants is one of the top M&A law firms in Indonesia, as ranked by leading independent legal publications including Chambers & Partners, IFLR1000, Legal 500 and Asia Law & Practice.

The following is an excerpt from Public Mergers and Acquisitions in Indonesia.

What is the current status of the M&A market in Indonesia?

Despite the slowing economy last year, M&A activity picked up generally at the end of 2014, although not specifically involving public companies. A new president took office in October 2014 and has made increasing infrastructure a key policy objective. This has initially led to increased flows into the equity and bond markets, although the Indonesian markets remain unpredictable as the new president moves to consolidate his power base and put his stamp on policies. Given Indonesia's significant GDP growth and growing middle class, interest in the country is likely to remain strong.

Major public M&A deals in 2014 included:

• Terra Investment Holdings acquiring 53.43% of the shares in PT Cipaganti Citra Graha Tbk, a taxi fleet operator, in October 2014.
• J Trust Co, of Japan, acquiring 99% of the shares in PT Bank Mutiara Tbk, a commercial bank, in November 2014.

What are the main means of obtaining control of a public company?

Typically, an acquisition of control over a public company is made by way of a share acquisition from the incumbent controller or by the purchase of shares in a rights offering. A change of control is generally deemed to occur where either:

• More than 50% of shares in the public company are acquired.
• Less than 50% of the shares are acquired, but there is an effective change of control over the management and/or policy-making in the company.

A Mandatory Tender Offer (MTO) is generally required following a change of control arising from an acquisition of shares from an incumbent shareholder, but is not required if the change of control arises from the subscription for newly issued shares in a rights offering. Other means of obtaining control include mergers and Voluntary Tender Offers (VTO).

However, given the regulatory and procedural complexities that a merger will entail (particularly when it involves public companies), mergers are rare except where they occur for regulatory purposes in the banking sector. VTOs are also rare and are more often used by a controlling shareholder to take a public company private and de-list rather than to acquire a controlling stake.

Hostile bids Are hostile bids allowed? If so, are they common?

Acquisitions in Indonesia can be performed through either:

• Direct buyouts from existing shareholders.
• Acquiring newly-issued shares in a rights offering.

Almost all Indonesian public companies have controlling shareholders in place, making hostile takeovers impossible. Direct buyouts require the co-operation of the existing controlling shareholders for the obvious reason that those controlling shareholders must be willing to sell, while rights offerings also require the co-operation of controlling shareholders for the simple reason that they are subject to the approval of a shareholders' meeting, where the controlling shareholders will have a blocking vote.

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