Merger & Acquisition (M&A) of Company (PT or PMA) in Indonesia
There is a clear difference between a merger and an acquisition:
A merger is where one or more existing companies merge together with another existing company. In a merger all of the assets and liabilities of the company which is absorbed are transferred to the other company. Upon completion of the merger, the company that has been absorbed no longer exists.
An acquisition happens when a legal entity or individual purchases shares in a limited liability company (PT or PMA) which results in the transfer of control in the company to the purchaser of shares. Usually transfer of control occurs when 50% of the shares with voting rights are bought and transferred to the purchaser.
Procedure M&A Transactions
The general process overview for mergers and acquisitions in Indonesia is mentioned below:
Due diligence of the target company, which includes a check on the company’s finances, taxation and legal documents.
preparation of a merger or acquisition proposal, which is prepared by the purchaser and the target company (in case of an acquisition) or the merging companies (in case of a merger), which shall be announced in newspapers in Indonesia;
the target company (in case of acquisition) or both merging companies will convene a general meeting of shareholders. In this meeting 75% of all shareholders with voting rights must approve on the acquisition or merger, as the case may be;
the approval of the M&A transaction by creditors and other third party stakeholders; and
the value of shares of the target company and/or the merging company must be determine based on the market value.
Once all prerequisites are met, the companies can finalize the acquisition or merger by way of amendment of the shareholder composition in the target company or merging company.
Restrictions in M&A Transaction for Foreign Investors
The Negative Investment List restricts the foreign the ownership of shares in certain businesses in Indonesia. Depending on the business field of the company, there may be shareholding restrictions:
Certain sectors are completely closed to foreign ownership, which means that only 100% local investors can operate in these sectors
Certain sectors are partially open to foreign ownership. In these sectors foreign investors are e.g. allowed to hold a maximum percentage of shares in a company or must have a partnership with a local investor.
It is however important to note that many sector in which foreign investors regularly invest, such as manufacturing, IT service and management consultancy, are 100% open to foreign investment.