The Indonesian Competition Commission (“ICC”) Regulation No. 3 of 2019 on the Assessment of Mergers and Consolidations of Business Entities or Acquisition of Shares in a Company that May Result in Monopolistic and/or Unfair Business Competition Practices (“Regulation”) came into effect on 3 October 2019.
The Regulation replaces the previous merger control guidelines contained in ICC Regulation No. 13 of 2010 as lastly amended by ICC Regulation No. 2 of 2013. One of the significant changes is an expansion of merger control to cover asset acquisitions.
Subjecting asset transactions to Indonesian merger control rules align the Indonesia regime with Singapore’s merger control regime and other regimes in ASEAN, where pure asset acquisitions constitute a “merger” subject to the merger control rules if certain, specific thresholds are met.
Under Singapore’s merger control regime, for instance, an acquisition of assets by one undertaking from another constitutes a “merger” if the result of said acquisition is to place the first undertaking in a position to replace or substantially replace the second undertaking in the business or any part concerned of the business in which that undertaking was engaged immediately before the acquisition. Similarly, under the merger control regimes of Philippines and Thailand respectively, acquisitions of assets which are sufficient to lead to an acquisition of control, and asset acquisitions of more than 50% the total operating assets relevant to the normal course of business of another business operator will be considered a “merger” that is subject to the merger control rules of the respective jurisdictions.
This Alert highlights the main changes brought about by the Regulation.
1. Asset acquisitions to be submitted/notified to the ICC
The Regulation imposes a notification obligation on asset acquisitions, equivalent to a share acquisition if it results in a change of control of the asset or advancement in the ability of the acquiring party to control a relevant market.
With respect to the threshold of asset transfers to be notified to the ICC, the same threshold that applies to share acquisitions will apply to asset transfers, if the following are satisfied:
- A combined asset value of the company exceeds 2.5 trillion Rupiah (20 trillion Rupiah if both parties are in the banking sector); or
- A combined sales value of the company exceeds 5 trillion Rupiah.
In addition, the ICC has also set a minimum number of prerequisite supporting documents that must be submitted to notify asset transfers.
2. ICC able to review foreign transactions
The new Regulation seeks to change ICC authority in reviewing foreign transactions. While ICC retains its authority to review foreign transactions where at least one of the parties has a business presence in Indonesia, the new Regulation provides more flexibility for ICC to review foreign transactions, as the new Regulation does not provide a rigid prerequisite.
3. Expansion of the definition of “affiliation”
The new Regulation expands the definition of affiliation, to incorporate a relationship between the company and the main shareholder (i.e. controlling business entity). Furthermore, it clarifies that the exemption to notify does not apply to transactions between affiliated companies. However, such exemption does not apply if the transaction involves placement of a member of the board of directors and/or board of commissioners or employees of the parties.
4. Additional aspects to be assessed
In addition to five criteria to be assessed (market concentration, barrier to entry, potential for anti-competition conduct, efficiency, and/or bankruptcy), under the new Regulation, the ICC may assess the types of and supporting documents, if deemed necessary, based on the following:
- Developments in the national industry and competitiveness policy;
- Technology innovation and development;
- Small and medium enterprise protection;
- Impact on employees; and/or
- Implementation of laws and regulations.
5. Rejection of notification
Previously, the ICC could accept notification simply by submitting a cover letter describing the transaction and filing a form, but under the new Regulation, the ICC can reject any incomplete submission of a notification upfront.
6. Notification acceptance and deadline
The new Regulation strictly regulates that notification will only be accepted if the business entity has completed its notification and submitted it during ICC’s business hours, which compels the business entity to keep tabs on their own deadline (i.e. 30 business days as of the effective date of the transaction), to avoid any possibility of a late submission.
7. Completeness of document submission
The new Regulation clearly stipulates that the ICC must complete its assessment of the completeness of document submission within 60 business days of its submission. If the notifying business entity fails to complete any request from the ICC within this period, the ICC may proceed to the assessment stage and review the transaction based on its assumptions, submitted supporting documents or publicly available data/information. It is believed that this would expedite the timeline process of the ICC notification of the transaction.
8. Right issue transactions
Even though the new Regulation does not amend the deadline of notification, which is still 30 business days as of the effective date of a transaction, the new Regulation finally defines the deadline of notification of a right issue transaction, which was left out of the previous regulation.
The effective date of such transaction is prescribed to be the same as the last date of payment of the shares and/or equity securities.
9. Determining delay of notification
Determining a delay of notification was not clearly regulated under the previous merger control guidelines. In practice, a delay would only be calculated starting from the date that the parties filed a notification to the ICC.
Under the new Regulation, determining a delay of notification is now calculated up until the date the ICC starts the investigation, not the notification date.
Voluntary consultation as part of a hybrid of post-merger control that the ICC held is not clearly defined under the new Regulation, unlike under the previous regulation. This provision needs further clarification from the ICC.
11. Paperless submissions
The new Regulation introduces paperless submissions. However, the notifying party is still allowed to submit hard copies of its notification documents, if necessary.