Mergers and Acquisitions

One of the ways that are often used by local and foreign entrepreneurs to carry out business development is through mergers (mergers) and acquisitions (takeovers). Merger in Black's Law Dictionary means the act or an instance of combining or uniting,meanwhile acquisition means the gaining of possession or control over something; especially the act of getting land, power, money, etc. (Acquisition of the target company's assets). The definition of mergers and acquisitions is further explained in Law Number 40 of 2007 concerning Limited Liability Companies and Government Regulation Number 57 of 2010 concerning Merger or Consolidation of Business Entities and Acquisition of Company Shares which May Result in Monopolistic Practices and Unfair Business Competition, which states that merger means "a legal act committed by one or more companies to merge with another existing company which results in the assets and liabilities of the merging Company being transferred due to law to the company accepting the merger and subsequently the status of the merging company legal entity ends because law." And acquisition which means "takeover is a legal act performed by a legal entity or individual to take over the shares of the Company which results in the transfer of control over the company."

Mergers and acquisitions are considered as a good and easy way for entrepreneurs to develop their business. Why is it said easy? because the company does not need to start a new business from scratch because the previous company has already been formed. In terms of time, mergers and acquisitions are faster than forming a new company because there is no need to go through stages such as establishment, management formation, marketing and other stages which are very time consuming. One example of a merger practice that occurred in Indonesia was the merger between Bank Lippo and Bank Niaga. In 2008 the two banks agreed to merge companies with the aim of strengthening their position in the global competition arena, in this case Bank Niaga is a company that is more dominant compared to Bank Lippo. Bank Niaga then bought shares owned by Bank Lippo and agreed to change their name after the merger to Bank CIMB Niaga.

Then one example of a successful acquisition in Indonesia is the practice of an acquisition between PT Danone and PT Aqua. Aqua is one of the most well-known Bottled Drinking Water (AMDK) brands in Indonesia so that it has become a generic brand for bottled drinking water. In 1998 due to intense competition and the emergence of new competitors, the current owner of Aqua sold his shares to Danone. The acquisition was considered appropriate because the improvement in product quality by Danone placed Aqua as the largest bottled water producer in Indonesia, and in 2000 Aqua launched a product labeled Danone Aqua.

Even though mergers and acquisitions sound easy and attractive, it is important to remember that an entrepreneur must also be careful in carrying out business development through mergers and acquisitions so as not to do things that are prohibited. So the question arises "What kinds of merger and acquisition activities are prohibited in Indonesia?"

Based on Government Regulation Number 57 of 2010, it explains the things that are prohibited in mergers and acquisitions contained in article 2, namely:

  • Business actors are prohibited from merging business entities, consolidating business entities, or taking over shares of other companies which may result in monopolistic practices and / or unfair business competition.
  • Monopolistic practices and / or unfair business competition occur if the business entity resulting from the merger, consolidation or business actor taking over shares of another company is suspected of:
  1. Prohibited agreements;
  2. Prohibited activities; and
  3. Abuse of dominant position.

If the Business Competition Supervisory Commission (KPPU) can prove a company violates the regulations regarding monopoly and unfair business competition, then these companies may be subject to administrative sanctions as regulated in article 47 of Law Number 5 Year 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition. Apart from administrative sanctions, criminal sanctions can also be imposed on business actors who violate merger and acquisition activities as regulated in Article 48 paragraph (1) of Law Number 5 Year 1999 which reads “Violation of the provisions of Article 4, Article 9 to Article 14. , Article 16 through Article 19, Article 25, Article 27, and Article 28 are punishable by a minimum fine of Rp. 25.000.000.000,00 (twenty-five billion rupiah) and a maximum of Rp. 100.000.000.000,00 (one hundred billion rupiah. ), or imprisonment in lieu of a fine of up to 6 (six) months.

Apart from the business actor's point of view, we also need to pay attention to the impact of mergers and acquisitions from the perspective of workers and employees, what will be the fate of workers and employees if the company where they work experiences a merger or is taken over by another company. How is the rule of law regarding the status of workers or laborers if the company where he works undergoes mergers and acquisitions?

Law Number 13 of 2003 concerning Manpower has regulated the impact of merger and expropriation of workers to the extent of the collective working agreement and the status of the working relationship. Regarding work agreements, the impact of taking over and merging companies on workers is regulated in Article 131 of the Manpower Act which reads:

  1. In the case of a takeover of company ownership, the collective working agreement remains in effect until the end of the collective working agreement period.
  2. In the event of a company merger (merger) and each company has a collective working agreement, the collective working agreement in effect is a collective working agreement that is more beneficial to workers / laborers.
  3. In the event of a company merger (merger) between companies that have a collective work agreement with companies that do not have a collective work agreement, the collective working agreement is valid for the merged companies until the end of the collective working agreement period.

However, it is also stated that employers can terminate their employees' employment in the event that the company carries out mergers and acquisitions, this is regulated in Article 163 of the Manpower Act which reads:

  1. The entrepreneur can terminate the worker / laborer in the event of a change in status, merger, consolidation, or change in company ownership and the worker / laborer is not willing to continue the work relationship, the worker / laborer is entitled to severance pay of 1 (one) time the provisions of Article 156 paragraph (2), reward money for a period of 1 (one) time in the provisions of Article 156 paragraph (3) and compensation for rights according to the provisions in Article 156 paragraph (4).
  2. The entrepreneur can terminate the worker / laborer due to a change in status, merger, or consolidation of the company, and the entrepreneur is not willing to accept workers / labor in his company, so the worker / laborer is entitled to severance pay of 2 (two) times the provisions of Article 156 paragraph ( 2), reward money for working period of 1 (one) time stipulated in Article 156 paragraph (3), and compensation money according to the provisions in Article 156 paragraph (4).

Apart from the things above, of course there are many other matters that may be faced or questioned by entrepreneurs who will conduct mergers and acquisitions, here are the questions that are commonly asked regarding merger and acquisition issues:

  1. When a financial services company conducts a merger which has a detrimental impact on customers, then what is the legal protection provided by the government for each customer whose rights have been impaired?
  2. Can a private company do mergers and acquisitions?
  3. What is the responsibility of the new owner for the debt of the company he acquired?
  4. Is there legal protection for minority shareholders in a merger in the event that a decision has the potential to harm them?

Thus writing a short article about Mergers and Acquisitions from a legal aspect, you can contact our office for further information and explanations.

Kind regards,

Writer team.