Indonesia has an evolving regulatory framework for competition regulation. Australian businesses must consider how their international M&A activity might trigger competition consequences in Indonesia.
Indonesia’s Anti-Monopoly and Unfair Competition Law requires that M&A activity that meets certain thresholds must be notified to the Business Competition Supervisory Commission (KPPU).
The triggers for notification are any share acquisition, merger or consolidation that results in:
(collectively, M&A Thresholds).
Exceptions apply to M&A activity between related companies.
KPPU will consider whether the M&A activity causes monopolistic or unfair competition, based on an analysis of:
In considering the M&A Thresholds and competition consequences, KPPU will aggregate the assets and sales values of all relevant companies involved in the M&A activity, including those which directly or indirectly control or are controlled by them. Importantly, this includes any non-Indonesian relevant companies with assets and sales in Indonesia (excluding exports).
Therefore, KPPU’s regulations indicate that even if the M&A activity occurs outside Indonesia’s jurisdiction, but involves companies with direct or indirect business activities, assets or sales in Indonesia (including through related companies), if the M&A Thresholds are met, KPPU notification and approval will be required.
For example, in 2013 Nestlé SA acquired Wyeth (Hongkong) Holding Company Ltd. Even though this was an international transaction, as both companies had Indonesian subsidiaries producing infant formula milk which met the M&A Thresholds, KPPU notification and approval was required. KPPU approved the transaction, but imposed ongoing reporting obligations over a particular period.
There is a compulsory post-M&A activity notification procedure under Indonesia’s Competition Law if the M&A Thresholds are satisfied. Within 30 business days of the M&A activity becoming legally effective, the surviving companies must notify KPPU.
Companies are liable to a fine of 1 billion rupiah (approximately A$96,000) for each day of delay. KPPU has previously imposed fines of 4.6 billion rupiah (approximately A$440,000) for delayed notification.
In theory, KPPU should make a determination of any monopolistic or unfair competition within 90 business days of receiving all required information. The review is usually performed in two stages: an initial review to be completed within 30 business days of KPPU receiving all required information and a second stage full review (if required) completed within 60 business days of the initial review. In practice, these timeframes are often longer.
Critically, as a result of its determination, KPPU may require the M&A activity to be amended (eg, via share or asset divestment) or even cancelled.
As such, it is advisable for companies to participate in the voluntary pre-M&A activity consultation procedure with KPPU. Pre-M&A activity consultation may be carried out at any time before completion of the M&A activity, but does not eliminate KPPU’s right to carry out any post-M&A activity review.
While KPPU has undertaken to evaluate any M&A activity only once (absent any material change in information or market conditions), if a company participates in the voluntary pre-M&A activity consultation which results in certain KPPU conclusions, there remains a risk that KPPU may subsequently make a different determination during any post-M&A activity review (including potentially requiring amendment or cancellation). KPPU advises it has never changed its preliminary conclusions during any subsequent post-M&A activity review.
Companies are exposed to administrative and criminal penalties if they fail to comply with KPPU’s determination, including a fine of up to 100 billion rupiah (approximately A$9.6 million) or 6 months goal.
Companies are able to challenge a KPPU determination before the Indonesian courts, although there has not been any such court challenge to date.
The Indonesian parliament is currently considering amendments to the Competition Law which may:
When contemplating international M&A activity, Australian businesses with assets or sales in Indonesian must consider:
It may also be worth considering proactively offering pro-competition concessions to KPPU to manage the risk of any delay in KPPU’s determination or any required amendment or cancellation of the M&A activity. While KPPU welcomes proactive concessions, it has limited experience of actually receiving them. Ultimately any concessions will depend upon the overall M&A activity structure, timeframes and strategy.
Jared Heath is a Senior Associate currently seconded to one of Indonesia’s leading law firms, Soemadipradja & Taher (S&T) as Foreign Counsel. More information on S&T is available from its website.
Corrs is not licenced to practice law in Indonesia and this should not be construed as providing Indonesian legal advice. If you would like further advice, please contact S&T.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.