On 2 October 2019, the Indonesian Competition Commission (“KPPU”) issued Regulation No. 3 of 2019 on Evaluation of Company Mergers, Consolidations or Share Acquisitions that May Result in Monopolistic Practices and/or Unfair Business Competition (“Regulation 3”). While Regulation 3 came into effect on 3 October, it only became public on 14 October.
Regulation 3 sets out the merger filings that must be submitted to the KPPU for mergers and acquisitions in Indonesia. It replaces the previous KPPU regulation on the same topic (as lastly amended by KPPU Regulation No. 2 of 2013). Under the previous regulation, mergers and consolidations of business entities as well as acquisitions of shares of another company (causing a change of control) that resulted in the asset value and/or sales value of the combined entity exceeding certain specified amounts had to be notified to the KPPU through a post-merger filing within 30 business days after the transaction became legally effective (i.e. completion).
The key change under the new regulation is that merger filings for the sale and purchase of assets must be submitted to the KPPU by the buyer where the asset transaction:
(a) results in a change of control or possession of the relevant asset; and/or
(b) increases the ability of the buyer to control the market.
This is the first time that merger filings have been formally required in Indonesia for asset acquisitions. The merger filing must be made to the KPPU within 30 business days after the effective date of the asset acquisition.
The assets and sales value thresholds for triggering a merger filing, the timing for making filings, and the sanctions for non-compliance are all unchanged. For more details, our e-bulletin on the previous regulation can be downloaded here.
The regulatory basis for extending merger control regulation to cover asset acquisitions is not entirely clear, given that Regulation 3 is an implementing regulation of Articles 28 and 29 of Indonesia’s Competition Law (Law No. 5 of 1999) and Government Regulation No. 57 of 2010 on Merger Filings, which do not expressly regulate asset acquisitions.
While Regulation 3 can be considered an improvement on the previous regulation since it codifies certain policies adopted by the KPPU in practice, further regulatory guidance is still needed.
In particular, Regulation 3 does not explain:
- the type of assets that are subject to the merger filing requirement (e.g., whether this would cover a transfer of non-core assets). The term “Asset” is broadly defined as “all tangible and intangible assets owned by a business that are valuable or have economic value”;
- the meaning behind the reference to any change of “possession” of the relevant asset (e.g., whether the merger filing requirement would apply to asset leases); or
- the threshold the KPPU will use to determine whether the asset transaction increases the ability of the buyer to control the relevant market (e.g., whether an increase of 10% in the buyer’s production capacity would qualify).
The broadly drafted definition of “Asset” will be particularly onerous for large businesses whose total assets already exceed the current asset threshold value (i.e., IDR2.5 trillion) as they would be required to undertake a merger filing for every asset purchase going forward.
Finally, we understand that the KPPU is also considering bringing the establishment of joint ventures into the merger control regime, but this is not covered by Regulation 3.
A more detailed update will follow.