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In brief

This client alert covers a new guideline on assessment of mergers, acquisitions and consolidations (“2020 Merger Guide“) that was issued by the Business Competition Supervisory Commission of Indonesia (“KPPU“) on 6 October. The KPPU is authorized to review merger, acquisition and consolidation transactions under Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Competition (“Antimonopoly Law“). The 2020 Merger Guide has already come into force.

Clarifications on Merger Filing Thresholds

  • In terms of the local nexus test of foreign-to-foreign transactions, the 2020 Merger Guide requires that a transaction must have a sufficient domestic impact for it to be notifiable in Indonesia. Domestic impact is defined as “including” a situation where one party has business operations in Indonesia and the other does not, but has either a sister company in operation in Indonesia or sales in Indonesia. This appears to be a retreat from the overly wide position where only one party was required to have either operations or sales in Indonesia for a transaction to be regarded as having sufficient local nexus.
  • On the types of transactions that are subject to merger control, the 2020 Merger Guide provides that acquisition of a participating interest is deemed as a form of acquisition of shares. This codifies the current KPPU practice.
  • With regard to calculation of assets threshold for merger control, the 2020 Merger Guide appears to confirm the current practice where on the acquirer’s side assets are calculated on a worldwide basis based on the latest audited reports. This will continue to enable the KPPU to claim jurisdiction over most acquisitions of Indonesian companies by multinationals.
  • With regard to calculation of the value threshold in asset acquisitions, the 2020 Merger Guide provides that the thresholds are calculated by adding (a) the value of assets of the acquiring party and its group and (b) the higher of the book value of the assets being acquired and the price of these assets. This is the first time that this formula has been spelt out.
  • The term ultimate holding entity is now defined as the ultimate entity controlling a business group over which there is no other entity that “independently” (secara mandiri) controls this entity. Previously no such definition was provided. This appears to be a test where KPPU asks the question whether there is any controlling shareholder above the relevant entity to determine that it is the ultimate holding entity.
  • With regard to the treatment of joint ventures, the 2020 Merger Guide provides that joint ventures are regarded as their own ultimate holding company. The example given is a 50-50 joint venture. So it appears to apply to situations where there is no dominant controlling party in a joint venture. This also codifies KPPU practice.

Clarifications on Criteria for Assets Acquisition

  • The 2020 Merger Guide provides that the following categories of asset transactions are exempt from merger control review:
    • If the assets are acquired by a non-bank acquirer, the value of the assets is less than IDR 250 billion.
    • If the assets are acquired by a bank, the value of the assets is less than IDR 2.5 trillion.
    • The asset acquisition is made in the ordinary course of business, such as a manufacturer acquiring raw material reserves (for up to three months), a retailer acquiring merchandise for resale.
    •  A property company acquires office space for its own use or acquiring assets for common or social facilities in its properties.
    • A company acquires assets that have no relation to its line of business such as acquiring assets for corporate social responsibility activities.

Procedural Reform

  • Simple review for transactions with no or minimal impact. The KPPU now provides for a simple review process that would last for 14 working days only (compared to the usual process which may last up to 90 working days) for transactions that have no competitive impact. This category includes  transactions  (i) where the businesses of the parties do not overlap,(ii) that do not lead to vertical integration or (iii) where the HHI concentration ratio stays below 1500 or in some cases less than or more than 2500 but with minimal HHI change (iv) a transaction causes a change from a joint control situation to a single control situation, e.g., where a joint venture shareholder buys out a partner
  • New thresholds for comprehensive review. The KPPU significantly restructures the threshold for markets that it considers to be highly concentrated and transactions that cause a significant increase in concentration to warrant a comprehensive review. The previous threshold for high market concentration is defined as having a Herfindahl-Hirschman Index (“HHI“) value of at least 1800. In the past, in general a transaction that causes the HHI value to exceed 1800 would be subject to comprehensive review. So, we had essentially a two-tier structure. Now we have a more complex three-tier structure that can be summarized as follows:
    • Tier I: HHI up to 1500. If the concentration ratio stays within this structure, the transaction will only be subject to a simple review and will be cleared.
    • Tier II: HHI from 1500 up to 2500. If the HHI change post-transaction is above 250, the transaction will be subject to a comprehensive review.
    • Tier III: HHI above 2500. If the HHI change post-transaction is above 150 the transaction will be subject to a comprehensive review.
  • Clarifications on remedies. With regard to remedies, the 2020 Merger Guide sets out the remedies that KPPU may impose if it objects to a merger. Such remedies may include the following. Interestingly, the most common remedy where KPPU requires the filing party to submit quarterly reports of prices and production volume is no longer mentioned, except in the context of the fair price policy remedy below:
    • Structural remedies such as an order to divest the acquired business.
    • Behavioural remedies such as (i) provision of access to essential facilities, (ii) cancellation of contractual arrangements that are deemed to be foreclosing in nature (e.g., exclusivity provisions); (iii) commitment to charge customers a fair price.
  • Voluntary remedy proposal. the 2020 Merger Guide allows the filing party (i.e., the acquirer or the merging company) to propose a remedy when it makes its initial filing. However, in a situation where the filing party initially claims that no remedy is necessary, the Guide does not include a specific procedure where a potential remedy will be first discussed during the KPPU comprehensive review. Thus there is no guarantee that sufficient time will be available to negotiate a remedy in a situation where the parties initially come in with a view that none is required.

Overall, the 2020 Merger Guide offers a sensible mix of codifications and incremental innovations that should help to reduce the number of transactions that are subject to comprehensive review (which can last up to 90 days in total). That said, a lack of clarity remains on some important points. The simple review process is supposed to last just 14 working days after KPPU has decided that a filing is eligible for this expedited process, but it is still unclear when exactly KPPU should make this decision. The local nexus requirement appears to be more restrictive but the wording of the Guide is still somewhat ambiguous as to whether transactions where one party has no connection at all with Indonesia are still subject to a merger review. These are just a few examples of the points that still need more clarity.

This is only a preliminary view of the 2020 Merger Guide. As usual, we expect KPPU to issue clarifications as it gathers comments from stakeholders. We will issue further alerts as these clarifications become available.


Wimbanu Widyatmoko is a senior partner in Mergers & Acquisitions Practice Group. He has experiences in handling various legal corporate/commercial issues, corporate Indonesian tax and international tax planning on inbound and outbound investment. Wimbanu has been consistently ranked as a leading lawyer by leading legal directories, such as Chambers Asia, Asia Pacific Legal 500, AsiaLaw Profiles and International Tax Review for several years.