Mechanism Of Acquisition Implementation Of Publicly Traded Companies

By : A.M Oktarina Counsellors at Law

Contributors:

Drafted by  : Elsya Dwi Putri, S.H. & Eldira Amany, S.H., Khaifa Muna Noer uh’dina, S.H.

Reviewed by : Noverizky Tri Putra Pasaribu S.H LL.M (Adv)

The restructuring of the company is a reorganization of the company’s management system which includes capital management and management. The purpose is for the company’s performance to become a fit company. In practice, the company’s restructuring can be carried out with several legal actions, including an acquisition, merger, consolidation, compensation receivable, or separation.

Based on Law No. 40 of 2007 concerning Limited Liability Companies (“Law No. 40/2007“), takeover or acquisition (“Acquisition“) is a legal action taken by a legal entity or individual to acquire shares in a Company’s which results with the transfer of control over the Company.[1] Acquisition is one of the actions or legal actions within the corporation that one of the objectives to improve the condition of the company and is expected to strengthen the financial condition of the company. Acquisition can be made between Limited Liability Companies or by a company that has offered its shares to the public through the Indonesia Stock Exchange (IDX or known as a Publicly Traded Companies.

Related to the Publicly Traded Companies, there are several things that need to be considered especially related to the mechanism in the implementation of the Acquisition in a Publicly Traded Companies. On that, we will identify further below by referring to Law No.40/2007, Law No.8 of 1995 on Capital Market (“Law No.8/1995”), Regulation of The Financial Service Authority No.9/POJK.04/2018 on The Actquisition of Capital Market Legal Counsultants Number: Kep.02/HKHPM/VII/2018 concerning Professional Standards of Capital Market Legal Consultants (“HKHPM Decree 2018”).

1. Implementation Mechanism of Acquisition in Publicly Traded Companies

• In Law No. 40/2007 is not specifically regulated for the implementation of Acquisition in Publicly Traded Companies. Furthermore, that the provisions governing Law No. 8/1995 and its implementing regulation POJK No. 9/2018 as well as for Legal Consultants who assisted in the process of taking over shares in the HKHPM Decree 2018.
• In Law No.8/1995 related to the Acquisition of Publicly Traded Companies consists of only 2 (two) Articles, namely Article 83 and Article 84, but does not describe the mechanisms or procedures in the implementation of Acquisition in Publicly Traded Companies. Only describe on the tender offer that must be made to purchase the Issuer’s Securities and the provisions on openness, fairness and reporting for the Publicly Traded Company to conduct the Acquisition.
• In the implementing regulation of Law No. 8/1995, namely in POJK No.9/2018, that the implementation of the Acquisition of Publicly Traded Companies, will be found the designation of new Controllers, especially those stipulated in the Regulation of the Financial Services Authority. As for the Controller of a nPublicly Traded Companies (“Controller”) either directly or indirectly in POJK No. 9/2018, it reads:

1. “owns over than 50% (fifty percent) of all shares possessing voting rights which has been fully paid-up of a Publicly Trade Company’s shares; or
2. has the ability to determine, either directly or indirectly in any way, the management and/or policy of Publicly Traded Companies.” [2]

• Further, we summarize the mechanism/procedure for the implementation of Acquisition in Publicly Traded Companies as regulated in POJK No. 9/2018, among others:

1. Conducting Negotiation During Acquisition Plan

• Prospective new controllers negotiating Acquisition plans must announce at least a few Acquisition negotiations through, among others:[3]

1. 1 (one) Indonesian language daily newspaper which is circulated nationally; or
2. the website of Stock Exchange.

There is an information and the purpose of announcements contained in daily newspapers and/or media which is further regulated in Article 4 paragraph

(3), paragraph (4), paragraph (5), Article (5) and Article (6) of POJK No.9/2018.

1. New Controllers Must Do Things, Among Others:

After the Acquisition occurs, the new controller must comply with the following Provisions:[4]

• Announce in at a minimum of 1 (one) Indonesian language daily newspaper which is circulated nationally or the website of the web Stock Exchange and report to the Financial Services Authority as regards the occurrence of the Acquisition by no later than 1 (one) business day after the occurrence of the Acquisition; and;

• Undertake the Mandatory Tender Offering, except for:

1. Shares owned by shareholders who already undertake Acquisition transaction with new the Controller;
2. The shares owned by other Parties which already secure an offer having the same requirements and conditions from the new controller;

• The shares owned by other Parties which at the same time also undertake the Mandatory Tender Offering or voluntary tender offering over the shares of the same Publicly Traded Company’s;

1. The shares owned by Majority Sharcholders; and
2. The shares owned by the other Controller of the said Publicly Traded Company.

The provisions as referred to in point 1) above, do not apply to Acquisition conducted indirectly through another Publicly Traded Companies, if the revenue contribution of the Publicly Traded Companies to the said other Publicly Traded Companies is less than 50% (fifty percent) based on the latest annual consolidated financial statements of other Publicly Traded Companies.[5]

• In the implementation of Mandatory Tender, the new Controller are required to submit the documents to the Financial Services Authority (“OJK“) and the Publicly Traded Companies that is taken over consists of a cover letter,

the text of announcement on the information disclosure of Mandatory Tender

Offering and other supporting documents.[6]

• The terms and conditions of the Tender Offer shall be further stipulated in

Article 12 paragraph (4) letter f POJK No. 9/2018.

• OJK The Financial Services Authority may request change and/or addition of information over the documents as referred to in Article 12 paragraph (1) POJK No. 9/2018 for the purpose of analysis or disclosure to the community.[7]The new Controller are required to submit the change and/or addition of information by no later than 5 (five) business days after the receipt of request for the change and/or addition of the information.[8]
• The new controller shall announce the disclosure of information in the form of the announcement text as referred to in Article 12 paragraph (1) POJK No.9/2018 for mandatory tender offer no later than 2 (two) working days after receiving a letter from the OK announcing the disclosure of information in the framework of the Mandatory Tender Offer.[9]
• Implementation of Mandatory Tender Offer for 30 (thirty) days after the announcement in the form of text through 1 (one) nationally-issued daily newspaper or Stock Exchange website. [10]
• The new controller completes the Mandatory Tender Offer transaction by submitting the money no later than 12 (twelve) days after the offer period ends.[11]
• Holders of Publicly Traded Company shares who intend to sell the shares they own in connection to the Mandatory Tender Offering, should handover said shares to the custodian appointed by the new Controller.[12]
• The new Controller are required to submit a report on the result of Mandatory Tender Offering to the OJK by no later than 5 (five) business days after the end of the transaction settlement. [13]

• Furthermore, in the HKHPM Decree 2018, there are several things that need further attention for the implementation of Acquisition in Publicly Traded Companies, such as:[14]

1. Name, place, position, business activities, capital structure and supervision of the company taking over the shares and the company being taken over;
2. The reasons and explanations for the takeover of shares by taking into account the interests of the company, society, fair business competition and legal consequences;
3. Summary of important financial data sourced from financial reports that have been audited by Public Accountants of each company;
4. The vailidity of the share ownership by the seller and the encumbrance of the shares (if any);
5. Important terms and conditions in the acquisition share agreement;
6. Procedures for the settlement of the rights and obligations of the company that will take over the shares of a third party;
7. Procedures for the settlement acquisition of share agreement;
8. Procedures for determining the purchase price of shares;
9. Procedures for the settlement of the rights of shareholders who do not agree with the acquisition of shares;
10. Explanation of the benefits, risks that may arise as a result of the acquisition of shares along with the mitigation of these risk, and future business plans;
11. The composition of shareholders regarding the possibility of a new controlling shareholder;
12. Corporate actions and approval required to carry out business merger or consolidation transactions;
13. Information disclosure to the public;
14. Whether or not there is an element of conflict of interest in the acquisition share transaction;and
15. Examination of legal disputes in: the company whose shares will be taken, the owner of the shares whose shares will be taken, and the company that will carry out the acquisition share transaction to see the impact on the acquisition share transaction.

• As described above in point 1.5, prior to the acquisition of a Publicly Traded Companies, supporting documents are required as a justification for the success or failure of the acquisition. The supporting documents referred to are reports from the Office of Public Appraisal Services related to the financial statements of Publicly Traded Companies, conducting further research to determine the market price for the purchase of the shares, preparing LDD and legal opinion/legal due diligence reports on the review of benefits, risks, mitigation risk of acquisition of share, future business plans and studies related to the presence or absence of elements of conflict

of interest in the transaction as well as examination of disputes in Publicly Traded Companies conducting public offerings. In the end, the implementation of the acquisition of a Publicly Traded Companies can run transparently and successfully for the parties who do it.

• Publicly Traded Companies should also involve Capital Market Supporting Institutions and Professionals to help prepare various documents related to company finances so that the public offering can be successful. The documents required are as follows:[15]

1. Financial Statements audited by Public Accountant registered with OJK;
2. The articles of association and their amendments are prepared by a Notary and approved by the competent authority;
3. Legal Audit from a Legal Consultant registered with OJK;
4. Assessment Report from Independent Appraiser registered with OJK, if any;
5. Public Offering Prospectus; and several other documents as stipulated in the applicable provisions.

• The Acquisition does not have to secure an approval from the general meeting of shareholders of the acquired Publicly Traded Company, except if an approval from the general meeting of shareholders is required by laws and regulations that regulates the business sector of the acquired Publicly Traded Company.[16]

2. Conclusion

Related to the implementation of the Acquisition of Publicly Traded Companies must also comply with the provisions stipulated in Law No.8/1995 with reference to Article 83 and Article 84, which in the provision explains that the implementation of the Acquisition must be carried out the mechanism of tender offer and pay attention to the principle of openness, fairness and reporting set by OJK in accordance with POJK No. 9/2018. Fulfillment of the implementation of the Acquisition at a Publicly Traded Companies is also obliged to refer to Law No.40/2007 as long as it is not regulated in the Capital Market Law and refers to Law No.8/1995, POJK No.9/2018 and the HKHPM Decision 2018. Furthermore, a Publicly Traded Companies that wants to acquisition need to see and consider the financial statements/financial performance of the company, so that everything is in accordance with the applicable regulations and the original purpose of the acquisition of the Publicly Traded Companies.

[1] Article 1 point 11 Law No.40/2007.

[2] Article 1 point 4 POJK No.9/2018.

[3] Ibid, Article 4 paragraph (2).

[4] Ibid, Article 7 paragraph (1).

[5] Ibid, Article 27.

[6] Ibid, Article 12 paragraph (1).

[7] Ibid, Article 13 paragraph (1).

[8] Ibid, Article 13 paragraph (2).

[9] Ibid, Article 13 paragraph (3).

[10] Ibid, Article 14 letter a.

[11] Ibid, Article 14 letter b.

[12] Ibid, Article 15 paragraph (1).

[13] Ibid, Article 16 paragraph (1).

[14] HKHPM Decree 2018, Part Two Article 23, page 62.

[15] Indonesia Stock Exchange, Panduang Go Public, page 5-6.

[16] Loc.Cit, Article 9.