Merger in Indonesia: A General Overview for Businesses

Merger plays a strategic role in corporate growth, allowing companies to expand, streamline operations, and enhance competitiveness. However, the process requires careful legal planning and compliance with Indonesian regulations. Understanding the legal framework governing mergers is essential to ensure a seamless transaction.
Mergers in Indonesia are primarily regulated under Law No. 40 of 2007 on Limited Liability Company, as amended by Law No. 6 of 2023 on Job Creation (the “Company Law”). This guide outlines the legal procedures, requirements, and key considerations to ensure legal compliance and mitigate risks.

Definition and Legal Implications of a Merger

A merger occurs when one or more companies integrate into an existing company, leading to the following legal consequences:

1. Transfer of Assets and Liabilities – All assets and liabilities of the merging companies are automatically assigned to the surviving company.
2. Change in Shareholding Structure – Shareholders of the merging entities become shareholders of the surviving entity based on an agreed conversion ratio.
3. Legal Dissolution Without Liquidation – The legal status of the merging companies is terminated without undergoing a separate liquidation process.

Mergers must be conducted in accordance with the principles of fairness and transparency, taking into account the interests of:

• Shareholders, including minority shareholders.
• Employees, ensuring compliance with labor laws.
• Creditors and business partners, by safeguarding contractual obligations.
• Market competition laws, ensuring compliance with Indonesia’s anti-monopoly regulations.

A well-executed merger can offer numerous advantages, such as increased market share, enhanced operational efficiency, and improved financial stability. However, improper planning or non-compliance with legal requirements can lead to disputes, financial losses, or regulatory penalties.

Types of Mergers in Indonesia

Mergers in Indonesia can be classified into several types, depending on the structure and objectives of the transaction. The most common types include:

1. Statutory Merger – This occurs when one company is completely absorbed by another, with the absorbed company ceasing to exist while the surviving company retains its legal identity and assets.
2. Subsidiary Merger – A parent company merges with its wholly-owned subsidiary, consolidating operations under a single legal entity. This is often used to simplify corporate structures.
3. Consolidation Merger – Unlike a statutory merger, a consolidation results in the formation of an entirely new company. The merging entities dissolve, and their assets, liabilities, and business operations are transferred to the newly created company.
4. Horizontal Merger – This involves the merger of two or more companies operating within the same industry, often to increase market share, reduce competition, or achieve economies of scale.
5. Vertical Merger – A merger between companies within the same supply chain, such as a manufacturer merging with a supplier or distributor, to improve operational efficiency and cost management.
6. Conglomerate Merger – A merger between companies operating in unrelated industries, primarily for diversification and risk management purposes.

Each type of merger has unique legal and regulatory considerations, particularly regarding shareholder rights, competition law compliance, and tax implications.

The Legal Process of a Merger in Indonesia

1. Preliminary Considerations and Feasibility Study

Before initiating a merger, companies must conduct a feasibility study to evaluate:

• Financial health and liabilities of the entities involved.
• Tax implications and compliance requirements.
• Market and competitive impact of the merger.
• Operational integration challenges and employee rights.

A well-structured feasibility study helps mitigate risks and align the merger with business objectives.

Kusuma & Partners assist business in preparing the Legal Due Diligence and Tax Due Diligence, ensuring your legal interests while complying with all legal requirements.

2. Preparation of the Merger Plan

The Board of Directors (BOD) of all participating companies must jointly draft a merger plan, which serves as the foundation for regulatory approvals. The plan must include:

• Company Information: Names, domiciles, and organizational structures of the companies involved.
• Legal and Financial Rationale: Justification for the merger.
• Share Conversion and Valuation: A detailed process for converting shares of the merging entities into shares of the surviving company.
• Amendments to Articles of Association (if applicable).
• Financial Statements: Audited financial reports for the past three years and a pro-forma balance sheet post-merger.
• Employee and Creditor Protections: Measures to fulfil obligations and safeguard rights.
• Merger Timeline and Execution Plan.

3. Board of Commissioners’ Approval

Following the merger plan’s preparation, it must be approved by the Board of Commissioners (BOC) of each company through:

• A formal BOC meeting, or
• A circulating resolution, where commissioners approve the plan in writing without a physical meeting.

4. Public and Employee Announcements

To ensure transparency, the BOD must:

• Publish an announcement in at least one nationally circulated Indonesian newspaper.
• Notify employees in writing about the proposed merger.

The announcement must contain:

• A summary of the merger plan.
• A notice that interested parties may review the merger plan at the company’s office.

This announcement must be issued at least 30 days before the General Meeting of Shareholders (GMS).

5. Addressing Creditors’ Objections

Creditors who object to the merger have 14 days from the public announcement date to submit their objections. If objections remain unresolved at the time of the GMS, the merger cannot proceed until a resolution is reached.

6. Shareholders’ Approval (GMS)

A General Meeting of Shareholders (GMS) must be held to approve the merger. Shareholders must receive formal notice at least 14 days in advance. The legal quorum and approval thresholds are as follows:

• First GMS: Requires at least 75% of voting shareholders to be present, with a minimum 75% approval vote.
• Second GMS (if quorum is not met): Requires two-thirds of voting shareholders, with a minimum 75% approval vote.
• Third GMS (if second fails): Requires a court-determined quorum.

Alternatively, shareholders may approve the merger without a GMS through a unanimous written resolution.

7. Shareholder Rights and Buyback Mechanism

Dissenting shareholders have the right to request a buyback of their shares at a fair market value. If the company cannot fulfil all buyback requests, it must arrange for a third party to acquire the shares.

8. Regulatory Approval for Foreign-Owned Company (PT PMA)

If the merger involves a foreign-owned company (PT PMA), it must obtain prior approval through the One Single Submission (OSS) system, in compliance with Indonesia Investment Coordinating Board (BKPM) regulations.

Read more our article: A Guide to Setting Up a Foreign-Owned Company (PT PMA) in Indonesia

9. Notification to the Indonesian Competition Supervisory Commission (KPPU)

In accordance with Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition, certain mergers must be reported to the Indonesian Competition Supervisory Commission (KPPU). Companies must notify the KPPU if the merger meets specific financial thresholds related to total assets or revenue as stipulated in KPPU Regulation No. 3 of 2023. Failure to notify KPPU when required may result in administrative sanctions or fines.

Kusuma & Partners assist businesses in handling Antitrust & Competition matters, ensuring your legal interests while complying with all legal requirements.

10. Execution of the Merger Deed

Once all approvals are obtained, the merger must be formalized in a Merger Deed, which must be:

• Drafted in Indonesian language.
• Executed before a public notary.

11. Submission to the Ministry of Law and Human Rights (MoLHR)

The Merger Deed and GMS resolution must be submitted to the Ministry of Law and Human Rights (MoLHR). The merger becomes legally effective:

• Upon approval from MoLHR, or
• On a later date specified in the Merger Deed.

12. Post-Merger Public Disclosure

Within 30 days of the merger’s effective date, the BOD of the surviving company must publish a post-merger announcement in an Indonesian newspaper.

Conclusion

Mergers in Indonesia require strict legal compliance, financial; tax and legal due diligence, and strategic execution. Ensuring all legal requirements are met is essential to avoid disputes, regulatory delays, or contractual liabilities.

At Kusuma & Partners Law Firm, we provide expert legal counsel to navigate the complexities of mergers, ensuring a legally sound and commercially beneficial outcome.

For professional legal assistance with Mergers and Acquisitions (M&A), contact us today.

Partnering with Kusuma & Partners Law Firm for Merger Transaction

Our firm specializes in corporate Mergers and Acquisitions (M&A), ensuring full compliance with Indonesian regulations. We provide strategic legal guidance, manage regulatory approvals, and protect our clients’ interests at every stage of the merger process. With extensive experience in corporate law, we ensure a smooth, legally sound, and efficient merger transaction.

“DISCLAIMER: This content is for general informational purposes only and is not a substitute for professional advice. Users rely on its content at their own risk. For professional advice, please consult us.”