Get to Know Cross-Border Enterprise Acquisition

PERTANYAAN

1. What are the laws and regulations for cross-border acquisitions in Indonesia?
2. What are the regulations if BUMN acquires a foreign company?

INTISARI JAWABAN

Cross-border acquisitions which are undertaken by domestic individuals/business entities toward business entities abroad are subject to the laws which apply to the relevant foreign business entities since the target of the acquired business entity is domiciled outside the jurisdiction of Indonesia.

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Mengenal Akuisisi Perusahaan Lintas Negara which was written by Kenny Purba, S.H. and was published on Tuesday, 7 February 2023.

This article below is an update of the article entitled Cross Border Enterprise Acquisition (Akuisisi Perusahaan Lintas Negara) which was first written by Andin Aditya Rahman, S.H. and was first published on Tuesday, 30 April 2013. 

All legal informations which are available through Klinik hukumonline.com have been prepared for educational purposes only and are general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

What is Acquisition?

What is an acquisition? According to Law 40/2007, acquisitions are referred to as takeovers. An acquisition is a legal action undertaken by legal entities or individuals to take over the shares of a company which results in the transfer of control over the said company.[1]

Then, following your question, it is important to understand first, what is cross-border acquisition? Isil Erel, Yeejin Jang and Michael S. Weisbach in an article in NBER Working Paper Series entitled Cross-Border Mergers and Acquisitions explain that cross-border acquisitions have the nature of taking over a business entity in a country which is carried out by a business entity in another country.

Furthermore, Munir Fuady in his book entitled Hukum tentang Akuisisi, Take Over dan LBO (Berdasarkan Undang-Undang Nomor 40 Tahun 2007) a.k.a Law on Acquisitions, Take Overs and LBOs (Based on Law Number 40 of 2007) also states that cross-border acquisitions are acquisitions which are conducted by one company to another company located outside the country. Due to the difference between the countries of the acquirer and the acquiree, and thus differing laws, procedures, and corporate cultures, cross-border acquisitions are far more complex than regular acquisitions.

According to the abovementioned explanations, it can be said that cross-border acquisitions could be carried out by:[2]

1. domestic individuals/business entities that take over business entities abroad; or
2. foreign individuals/business entities that take over domestic business entities.

Cross-Border Acquisitions, Which Laws Apply?

In response to your question, the Indonesian laws and regulations do not address any cross-border acquisitions which are undertaken by domestic individuals/business entities for business entities abroad. This is because the cross-border acquisition is subject to the law applicable to the relevant foreign business entity. Considering the target of acquired business entities are domiciled outside of Indonesian jurisdiction.

On the other hand, cross-border acquisitions which are undertaken by foreign business entities in relation to Indonesian business entities are in general subject to the provisions on acquisitions, as regulated under the following laws and regulations.

1. Law Number 40 of 2007 on Limited-Liability Companies;
2. Law Number 25 of 2007 on Investment;
3. Regulation of the Government Number 27 of 1998 on Merger, Consolidation, and Acquisition of Limited Liability Companies;
4. Regulation of the President Number 10 of 2021 on Investment Business Fields as amended by the Regulation of the President Number 49 of 2021 on the Amendment to Regulation of the President Number 10 of 2021 on Investment Business Fields;
5. Regulation of the Business Competition Supervisory Commission Number 3 of 2019 on Assessments of Mergers or Consolidations of Business Entities, or Acquisitions of Company Shares which may Result in Monopolistic Practices and/or Unfair Business Competition;

Cross-Border Acquisition by BUMN to Foreign Business Entities

In answer to your second question, there are basically no regulations which explicitly prohibit State-Owned Enterprises (Badan Usaha Milik Negara/”BUMN”) from engaging in the acquisition of foreign business entities. Thus, in principle, BUMN may take such legal action. As mentioned earlier, the acquisition of BUMN to foreign entities is subject to the laws of the relevant country.

As additional information, the Minister of State-Owned Enterprises has also issued Circular Letter No. SE-13/MBU/10/2021, which states that BUMN may undertake capital participation in the form of land to existing subsidiaries or joint ventures, provided that the BUMN shareholding in the subsidiaries or joint ventures is at least 99% before or after the inbreng of BUMN share.[3]

However, the minimum 99% shareholding in said subsidiaries or joint ventures may be waived, because of the following reasons:[4]

1. Implement the obligations of government policies or programs, including policies or programs of the Minister of State-Owned Enterprises; and/or
2. Company restructuring in order to increase company value.

It should be noted that any waiver of the 99% minimum shareholding requirement for the abovementioned reasons may only be undertaken upon securing prior approval from the Minister of State-Owned Enterprises.[5]

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These are the answers we can provide, we hope you will find them useful.

Legal Basis:

1. Law Number 25 of 2007 on Investment;

2. Law Number 40 of 2007 on Limited-Liability Companies;

3. Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation;

4. Regulation of the Government Number 27 of 1998 on Merger, Consolidation, and Acquisition of Limited Liability Companies;

5. Regulation of the President Number 10 of 2021 on Investment Business Fields as amended by the Regulation of the President Number 49 of 2021 on the Amendment to Regulation of the President Number 10 of 2021 on Investment Business Fields;

6. Regulation of the Business Competition Supervisory Commission Number 3 of 2019 on Assessments of Mergers or Consolidations of Business Entities, or Acquisitions of Company Shares which may Result in Monopolistic Practices and/or Unfair Business Competition;

7. Circular Letter of the Minister of State-Owned Enterprises Number SE-13/MBU/10/2021 of 2021 on Capital Participation of State-Owned Enterprises in the Framework of Establishment of Subsidiaries or Joint Venture Companies, and Additional Investment in Subsidiaries or Joint Venture Companies, and Additional Investment in Subsidiaries or Joint Venture Companies.

 

Reference:

1. Isil Erel, Yeejin Jang and Michael S. Weisbach. Cross-Border Merger and Acquisition, NBER Working Paper Series No. 30597, October 2022;
2. Munir Fuady. Hukum Tentang Akuisisi, Take Over dan LBO (Berdasarkan Undang-Undang Nomor 40 Tahun 2007), Bandung: PT Citra Aditya Bakti, 2008.

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[1] Article 109 number 1 Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation (“Perppu 2/2022”) that amended Article 1 number 11 Law Number 40 of 2007 on Limited-Liability Companies (“Law 40/2007”).

[2] Munir Fuady. Hukum Tentang Akuisisi, Take Over dan LBO (Berdasarkan Undang-Undang Nomor 40 Tahun 2007), Bandung: PT Citra Aditya Bakti, 2008, p. 185.

[3] 1^st Dictum of Circular Letter of the Minister of State-Owned Enterprises Number SE-13/MBU/10/2021 of 2021 on Capital Participation of State-Owned Enterprises in the Framework of Establishment of Subsidiaries or Joint Venture Companies, and Additional Investment in Subsidiaries or Joint Venture Companies, and Additional Investment in Subsidiaries or Joint Venture Companies (“Circular Letter No. SE-13/MBU/10/2021”).

[4] 2^nd Dictum of Circular Letter No. SE-13/MBU/10/2021.

[5] 3^rd Dictum of Circular Letter No. SE-13/MBU/10/2021.