Market Concentration

Karina Putri
 Concentration of control and/or
market power
• merger
• Acquisition
• Consolidation
• Joint venture
 Merger
• Unification of two or more undertakings into one in which one
undertaking remains exist after the unification.
• GR 57/2010:
legal action performed by one or more undertaking to
merge with other undertaking that already exist,
resulting in the assets and liabilities of the undertaking
transferred by law to the merged undertaking which
receive merger and thus the status of the merged
undertaking is ended by law.
 Acquisition
• An undertaking takes over the controlling
interest of another company
• GR 57/ 2010
a legal action performed by undertakings
to acquire shares of undertaking resulting
in the shift of control over undertaking
 Consolidation
• The combination of two or more separate companies which
creates a new entity
• GR No. 57 / 2010
a legal action performed by two or more undertakings to
combine themselves by establishing a new entity, which
by law, possessed the assets and liabilities a new entity,
which by law, possesses the assets and liabilities of the
merged undertaking and the status of the merged
undertaking is ended by law
 Joint Venture
Two or more undertakings in order to be able to
jointly undertake economic activities, where all
parties agree to share profits and losses of the
company
 Why Merger?
• New York Central dan Pennsylvania Railroad
• Quaker oats dan Snapple
• America online dan Time Warner
• Sprint dan Nextel Communications
• Disney and Pixar
• Exxon and Mobil
• Google and Android
• Facebook and Instagram
 Eggleston Committee
• It is necessary to ensure that:
(1) the shareholders are fully informed, and in particular that they have
knowledge of the bidder identity and all matters which may be relevant to
the merits of the proposals;
(2) the shareholders have sufficient time reasonably to assess the merits of
the proposals;
(3) as far as practicable, all shareholders have an equal opportunity to share
in any benefits accruing to any shareholder under the proposal. (à principle
of equality of opportunity)
Market Rule (street rule) v Equality of
opportunity Rule (Mandatory Bid Rule)
• maximum freedom on a company’s incumbent controller
by enabling sale shares (hence control over the target
company) to any acquirer offering an acceptable price
• an acquirer of a controlling stake in a listed company has to
offer the remaining shareholders a buy-out of their
minority stakes at a price equal to the payment received by
the incumbent controller
àControlling shareholders should occupy fiduciary position
(US)
• Indonesia?
 The purpose of merger control
• Company Law v competition law
• Is merger control necessary?
• There is nothing unlawful about merger
activity and the market for corporate control?
 Theories of competitive harm
• Unilateral or non coordinated effects
• Coordinated effects
• Vertical effects
• Conglomerate effects
 The purposes
• Increase market power
• Overcome barriers to entry
• Reduce cost and risk of new product development
• Increase speed to market
• Increase product diversification
• Avoid excessive competition
 impacts
• Increase the performance or efficiency of the
undertakings resulting to the increase of
consumer’s welfare
• Lessen competition in the relevant market
(merger between competitors)
 Law No.5/ 1999
• Article 28à prohibits merger that may result
in a monopoly or unfair competition practices
• Article 29à mergers which result in combined
assets, sales, or both exceeding certain
thresholds as set forth under government
regulation shall be notified to KPPU
 Government Regulation No. 57
Year 2010
• Concerning Merger Or Consolidation Of Business Entities And
Acquisition Of Shares Of Companies Which May Cause
Monopolistic Practices And Unfair Business Competition
 POJK No.9 Year 2018 regarding
Acquisition of Open Company
• Identify indirect controllerà clarify the
meaning of control and controller
• changes the rules governing exemptions from
the takeover-announcement and MTO
requirements
 Indirect controller?
• A shareholders’ agreement showing that the party has more than 50% of voting
rights;
• Provisions of the articles of association or an agreement showing the party’s
authority to set the financial and operational policy of the company;
• Documents or information showing the party’s authority to appoint or replace the
majority of the members of the company’s board of directors and board of
commissioners;
• Documents or information demonstrating the ability to control a majority of the
votes at board of directors’ and board of commissioners’ meetings; and/or
• Other documents or information indicating control of the company.
 Commission Regulation
• CR no. 10 Year 2010à types of notification forms
• CR no. 11 Year 2010à voluntary notification: consultation
• CR no. 4 Year 2012à administrative sanctions for notification
delay/ failure
• CR no. 2 Year 2013 à notification and consultation
procedures, the threshold, substantive test, types of merger
to be notified or consulted
 Scope of merger
• Merger, acquisition, consolidation and joint venture
• Interlocking directorship
• Cross Ownership
• Joint venture
 Interlocking directorship
• à the CR No. 7 / 2009: prohibited if the undertakings:
1. Are in the same relevant market;
2. Have a close links in the field and or type of business
activities;
3. Are jointly capable of controlling market shares of particular
goods or services.
The risk of interlocking directorship
• Administrative controlà the formation of
common strategies among enterprises on
prices or other concerted activities
• Vertical integrationà conglomerate
acquisition of control
(UNCTAD Model Law on Competition)
 Interlocking directorship
• Based on Law No. 5 Year 1999à does not fall
within the rule on merger control and does
not require any notification.
 Cross ownership
• Method of reinforcing business relationship by
owning stock in the companies with which a
given company does business.
 Cross ownership
• Positives
1. Closely ties each business to the economic
destiny of its business partner; and/or
2. Promotes a slow rate of economic change
 Cross ownership
• Stagnating the economy;
• Wasting capital that could be used to improve
productivity;
• Expanding economic downturns by preventing
reallocation of capital
à Please check article 27 law no. 5/1999
 Joint Venture
• Contractual joint venture
• Equity joint venture

à To pool assets in the form of equity and to

share the revenues, expenses, and assets and
the control
 Motivations to form joint venture
• Reducing entry risks by using the local partner’s assets;
• Inadequate knowledge of local institutions or legal environment
• Access to local borrowing powers
• Perception that the goodwill of the local partner is carried forward
• In strategic sectors, the domestic law may not permit foreign undertakings
to operate independently;
• Access to local partner on government officials or compulsory requisite
;and/or
• Access by one partner to foreign technology or expertise, often a key
consideration of local parties
 UNCTAD Model LAW v LAW 5/99
• The case of interlocking directorship, cross
ownership, and joint venture are not
stipulated under the same rule as merger
control.
• à exemption of Article 5 Law No. 5/ 1999
 Threshold
• Value of total assets of undertaking resulted exceeds IDR 2.5
trillion
• The value of total sales (turnover) of the undertaking resulted
exceeds IDR 5 trillion
• Merger involving banks, combined assets IDR 2 trillion
• Between bank and non bank the threshold IDR 2.5 trillion
 Consultation
• Informal/ oral consultation
• Formal/ written consultation
 Substantive Assessment
(Article 3 GR 57/2010)
• Market concentration
• Barriers to entry
• Potential anti-competitive effects
• Efficiency
• Bankruptcy
 Article 6 GR No. 57/2010
• In the event that a Business Actor does not give written notice
as intended in Article 5 paragraphs (1) and (3), the Business
Actor concerned shall be subject to a sanction in the form of
administrative penalty in the amount of Rp1,000,000,000.00
(one billion rupiah) for each day of delay, provided that the
maximum amount of administrative penalty shall be in the
amount of Rp25,000,000,000.00 (twenty-five billion rupiah).
 The remedies
• There will be no remedy unless there is a sound basis for believing a
violation will occur
• Remedies must be based upon a careful application of sound legal and
economic principles to the particular facts of the case at hand
• Restoring competition is the key to an antitrust remedy
• The remedy should promote competition, not competitors
• The remedy must be enforceable
• The KPPU will commit the time and effort necessary to ensure full
compliance with the remedy
Thank you