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Types and Procedures of Doing Merger in Indonesia
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Definition of Merger
According to Article 109 Point 1 of Law Number 6 of 2023 which amended Article 1 Paragraph (9) of Law Number 40 of 2007 concerning Limited Liability Companies (“Company Law”), a merger is a legal act carried out by one company or more to merge with another existing company which results in the assets and liabilities of the merged company is transferred by law to the surviving company and then the legal entity status of the merged company ends by law.
As an illustration, PT A as the Merged Company, merges with PT B as the Surviving Company, then the result of the merger will only be PT B and PT A will be removed from the list of companies at the Ministry of Law and Human Rights because its legal entity status has ended by law. The consequences of the merger process will also cause the change of PT B’s shareholders composition, where there are two scenarios, namely i) all PT A shareholders hold shares in PT B; or ii) some PT A shareholders hold shares in PT B and some sell their shares to other PT A shareholders or PT B shareholders at a share selling price based on the share valuation value and share price negotiations between the parties.
Types of Merger
In carrying out the merger, the company has several reasons and objectives to be achieved. First, revenue and cost synergies, whereby a merger can bring more profits to shareholders by increasing the value of new businesses. Second, diversification of business operations, to enter new markets and offer new products and/or services. Third, increase the financial capacity of companies that are not doing so well so that they can support the business operations.
There are several types of mergers, as follows:
1. Sidestream (Horizontal) Merger
Sidestream merger means merger between business competitors. This means that the merging companies are companies that operate in the same market and offer similar products and/or services. For example, the merger of Daimler-Bens and Chrysler in 1998. Another example is the merger of PT Bank BRISyariah Tbk. PT Bank BNI Syariah, and PT Bank Syariah Mandiri to become PT Bank Syariah Indonesia Tbk in 2021.
2. Downstream (Vertical) Merger
Downstream merger means a merger between companies operating in the same supply chain line, such as the main business with a supplier or distributor company that works with the main company. For example, the merger of America Online and Time Warner in 2000 or PT Gudang Garam Tbk as a producer of kretek cigarettes and with its subsidiary, namely PT Surya Pamenang as a producer of paper which is one of the materials for making cigarettes.
3. Conglomerate Merger
Conglomerate merger is a merger between companies that are involved in unrelated business activities, that is operating in different industries or different geographical areas. For example, the merger of The Walt Disney Company and American Broadcasting Company in 1995 or the merger between Gojek and Tokopedia which later formed PT GoTo Gojek Tokopedia Tbk.
4. Congeneric Merger
Congeneric merger is a merger between companies operating in the same market or sector with overlapping factors, such as technology and marketing by adding a new product line from one company to another. For example, the merger of Citigroup and Travelers Insurance in 1998.
5. Market Expansion Merger
Market expansion merger means a merger between companies selling the same product but competing in different markets with the aim of gaining access to a larger market. For example, the merger of Eagle Bancshares and RBC Centura in 2002 or merger between PT Indosat Ooredo Tbk and Hutchison 3 Indonesia which then formed PT Indosat Ooredo Hutchison Tbk in 2022.
Procedure of Doing Merger
As regulated in Chapter VIII of the Company Law, there are several steps in carrying out a merger, including:
1. The merger preparation process, where the Company is obliged to pay attention to the interests and obligations of the company, minority shareholders, company employees, creditors and business partners of the company as well as business competition in conducting business. Regarding business competition, companies are required to provide notification to the Business Competition Supervisory Commission (KKPU) regarding this merger plan.
2. The Board of Directors prepares a merger plan.
3. Hold a General Meeting of Shareholders (GMS) to obtain approval from each shareholder of the Merged Company and the Surviving Company.
4. Announce a summary of the merger plan in national newspapers.
5. Creditors' right to submit objections regarding merger legal actions.
6. Prepare a merger deed based on the GMS deed approving the Merger of the Merged Company and Surviving Company.
7. A copy of the merger deed is notified to the Ministry of Law and Human Rights for approval.
8. The Board of Directors announced the results of the merger in national newspapers.
9. Obligation to notify KPPU of the merger results.
10. Carry out tax arrangements for merger transactions such as Income Tax on capital gains, Value Added Tax (VAT) and final Tax Income on asset transfers and Land and Building Rights Acquisition Fees (BPHTB).
The time period for implementing this merger process, particularly for companies that are not in the same company group, will require quite a long time because it involves many parties and government authorities. Another thing that also needs to be considered is the settlement or adjustment of working relationships with Merged Company employees.
Click DOWNLOAD PDF to read this Article in Indonesian version
+62 21 2963 8070 or drop us an email at mail@ksplaw.co.id.
Definition of Merger
According to Article 109 Point 1 of Law Number 6 of 2023 which amended Article 1 Paragraph (9) of Law Number 40 of 2007 concerning Limited Liability Companies (“Company Law”), a merger is a legal act carried out by one company or more to merge with another existing company which results in the assets and liabilities of the merged company is transferred by law to the surviving company and then the legal entity status of the merged company ends by law.
As an illustration, PT A as the Merged Company, merges with PT B as the Surviving Company, then the result of the merger will only be PT B and PT A will be removed from the list of companies at the Ministry of Law and Human Rights because its legal entity status has ended by law. The consequences of the merger process will also cause the change of PT B’s shareholders composition, where there are two scenarios, namely i) all PT A shareholders hold shares in PT B; or ii) some PT A shareholders hold shares in PT B and some sell their shares to other PT A shareholders or PT B shareholders at a share selling price based on the share valuation value and share price negotiations between the parties.
Types of Merger
In carrying out the merger, the company has several reasons and objectives to be achieved. First, revenue and cost synergies, whereby a merger can bring more profits to shareholders by increasing the value of new businesses. Second, diversification of business operations, to enter new markets and offer new products and/or services. Third, increase the financial capacity of companies that are not doing so well so that they can support the business operations.
There are several types of mergers, as follows:
1. Sidestream (Horizontal) Merger
Sidestream merger means merger between business competitors. This means that the merging companies are companies that operate in the same market and offer similar products and/or services. For example, the merger of Daimler-Bens and Chrysler in 1998. Another example is the merger of PT Bank BRISyariah Tbk. PT Bank BNI Syariah, and PT Bank Syariah Mandiri to become PT Bank Syariah Indonesia Tbk in 2021.
2. Downstream (Vertical) Merger
Downstream merger means a merger between companies operating in the same supply chain line, such as the main business with a supplier or distributor company that works with the main company. For example, the merger of America Online and Time Warner in 2000 or PT Gudang Garam Tbk as a producer of kretek cigarettes and with its subsidiary, namely PT Surya Pamenang as a producer of paper which is one of the materials for making cigarettes.
3. Conglomerate Merger
Conglomerate merger is a merger between companies that are involved in unrelated business activities, that is operating in different industries or different geographical areas. For example, the merger of The Walt Disney Company and American Broadcasting Company in 1995 or the merger between Gojek and Tokopedia which later formed PT GoTo Gojek Tokopedia Tbk.
4. Congeneric Merger
Congeneric merger is a merger between companies operating in the same market or sector with overlapping factors, such as technology and marketing by adding a new product line from one company to another. For example, the merger of Citigroup and Travelers Insurance in 1998.
5. Market Expansion Merger
Market expansion merger means a merger between companies selling the same product but competing in different markets with the aim of gaining access to a larger market. For example, the merger of Eagle Bancshares and RBC Centura in 2002 or merger between PT Indosat Ooredo Tbk and Hutchison 3 Indonesia which then formed PT Indosat Ooredo Hutchison Tbk in 2022.
Procedure of Doing Merger
As regulated in Chapter VIII of the Company Law, there are several steps in carrying out a merger, including:
1. The merger preparation process, where the Company is obliged to pay attention to the interests and obligations of the company, minority shareholders, company employees, creditors and business partners of the company as well as business competition in conducting business. Regarding business competition, companies are required to provide notification to the Business Competition Supervisory Commission (KKPU) regarding this merger plan.
2. The Board of Directors prepares a merger plan.
3. Hold a General Meeting of Shareholders (GMS) to obtain approval from each shareholder of the Merged Company and the Surviving Company.
4. Announce a summary of the merger plan in national newspapers.
5. Creditors' right to submit objections regarding merger legal actions.
6. Prepare a merger deed based on the GMS deed approving the Merger of the Merged Company and Surviving Company.
7. A copy of the merger deed is notified to the Ministry of Law and Human Rights for approval.
8. The Board of Directors announced the results of the merger in national newspapers.
9. Obligation to notify KPPU of the merger results.
10. Carry out tax arrangements for merger transactions such as Income Tax on capital gains, Value Added Tax (VAT) and final Tax Income on asset transfers and Land and Building Rights Acquisition Fees (BPHTB).
The time period for implementing this merger process, particularly for companies that are not in the same company group, will require quite a long time because it involves many parties and government authorities. Another thing that also needs to be considered is the settlement or adjustment of working relationships with Merged Company employees.
Click DOWNLOAD PDF to read this Article in Indonesian version
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