Acquisitions is a Company’s Strategies in Business Activities

ADCO Law

Acquisition is a method that is currently popular and widely adopted by companies especially to maximize the prosperity of company stakeholders. Rapid business developments and changes require business actors to seek breakthroughs so that their business can continue to run and even continue to grow. With an acquisition, two or more business entities continue to exist legally with the largest business entity becoming the holding company. In general, the acquisition process only changes the status of share ownership i.e., share ownership shifts from the shareholders of the acquired to the shareholders of the acquirer company. This article will provide further explanation regarding the Definition, Purpose, Terms, Process, Form, and Legal Consequences of Acquisition.

A. Legal Basis

1. Law Number 40 of 2007 on Limited Liability Companies (“Law 40/2007”)
2. Law Number 11 of 2020 on Job Creation (“Law 11/2020”).

B. Definition of Acquisition

Article 1 paragraph (1) of Law 40/2007 jo. Law 11/2020 regulates the definition of Acquisition with the term takeover as follows:

“A takeover is a legal act carried out by a legal entity or individual to take over the shares of a company which results in the transfer of control over a limited liability company”

Based on the definition of takeover as referred to the above, some conclusions are drawn as follows:

1. Takeover is a legal act
2. The party who takes over shares is a person or legal entity
3. The takeover method is taking over shares
4. The takeover of the shares may result in the transfer of control over the limited liability company.

C. Reasons for Acquisition

The reasons for acquisition:

1. to obtain cashflow quickly to keep up with the fact that the product and market are clear;
2. to obtain ease of funding/financing because creditors have more confidence in well-established companies;
3. to acquire experienced employees;
4. to get established customers without having to start from scratch;
5. to obtain an established operational and administrative system;
6. to reduce the risk of business failure by not having to look for new customers;
7. to save time in entering new business; and
8. to acquire infrastructure to achieve faster growth.

 

D. Purpose of Acquisition

In general, the purpose of an acquisition is to create synergies or added value. Companies that desire fast growth, in terms of size, stock market, or business diversification, can carry out mergers or acquisitions. Another purpose of an acquisition is to increase efficiency, with which prices can be lowered and service quality can be improved. 

Inter-company acquisitions also allow companies to have greater liquidity of company owners and to develop technology used in their business operation. A bigger company is likely to have a wider market making it more liquid than a small company. Acquisitions can also help realize the goal of the company i.e., increasing the value of the company or maximizing the prosperity of shareholders. The success of the acquisition, among others, is measured by the achievement of an increase in the value of the company after the acquisition. If the post-acquisition value of the company does not increase, it means that the shareholders have lost the premium paid plus other costs in the context of the acquisition transaction.

E. Acquisition Process

The Acquisition process is as follows:

1. General Meeting of Shareholders (GMS) Decision
2. Notification to the Board of Directors of the Company
3. Preparation of the Acquisition Plan
4. Acquisition Design Summary
5. Creditor’s Objection
6. Making the Deed of Acquisition before a Notary
7. Notice to the Minister

 

F. Forms of Acquisition

Acquisitions can be divided into three major groups:

1. Horizontal acquisition,  an acquisition made by a business entity that is still in the same business.
2. Vertical acquisition, an acquisition of suppliers or customers of the purchased business entity.
3. Conglomerate acquisition, an acquisition of a business entity that has nothing to do with the buyer’s business entity.

Furthermore, acquisition is also classified based on the object acquired i.e., share acquisition and asset acquisition, namely:

1. Acquisition of shares. This acquisition is used to describe a share sale and purchase transaction of a company, and the transaction results in the transfer of ownership of the company from the seller to the buyer. Acquisition of shares is one of the most common forms of acquisition in almost every acquisition activity.
2. Acquisition of asset. If a company intends to own another company, the company can buy some or all of the assets of the other company. If the purchase only covers a part of the company’s assets, it is called a partial acquisition. Asset acquisition can simply be said to be a sale and purchase between the party who acquires the asset (as the buyer) and the party whose asset is acquired (as the seller). The acquisition can be carried out with cash payments or through an exchange agreement between the acquired asset and another object belonging to the party making the acquisition in case the acquisition is not conducted in cash.

G.  Legal Consequences of Acquisition

The legal act of Acquisition does not result in the dissolution of the company whose shares have been taken over. The company still continues to exist and to operate as usual, but it is only that the share ownership shifts from the initial majority shareholders to the party who takes over. The legal consequences are only limited to the control over the acquired company, which is transferred from the initial majority shareholders to the party who takes over.

 

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ADCO Law as a Law Firm Jakarta has experiences and qualified resources to assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing, and securing investments as well as establishing new foreign companies in Indonesia. 

 

Should you have more queries regarding this matter, please do not hesitate to contact us

ADCO Law

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Jl. H.R. Rasuna Said Kav. 62, Setiabudi Karet

Jakarta Selatan, 12920, Indonesia.

Phone : +6221 520 3034

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Email : [email protected]

Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.