By: Tim Riset Yuris Muda Indonesia

Merger

Based on article 1 point 9 of Law Number 40 of 2007 concerning Limited Liability Companies (“Law 40/2007”) Defines a merger/merger is a legal act carried out by one or more companies to merge with another existing company which results in assets and the liability of the merging company is transferred by law to the company that accepts the merger and subsequently the legal entity status of the merging company ends by law.

Example: PT. A and PT. B merges, PT A as the recipient of the merger/merger and PT B as the merging party to PT A. From the transaction, PT B will become part of PT A and all assets and liabilities along with PT B’s legal obligations will be transferred to PT A as the recipient of the merger/merger from PT B

Acquisition/Takeover

Based on article 1 number 10 of Law 40/2007 defines acquisition/acquisition as a legal act carried out by a legal entity or individual to take over the shares of the company which results in the transfer of control over the company.

Example: PT A acquires PT B which has the following composition of shareholders: PT C 70% shares and PT D 30% shares. The acquisition occurs when PT A buys all shares of PT C as much as 70% of the shares. After the sale and purchase of shares is effective, there has been a change in the Company’s attorneys from PT C to PT A.

Consolidation/Consolidation

Based on article 1 number 10 of Law 40/2007 defines consolidation or consolidation as a legal act carried out by two or more companies to merge themselves by establishing a new company which by law acquires assets and liabilities from the consolidating company and the legal entity status of the company that is merge ends by law. Consolidation can be defined as the merging of two or more companies by establishing a new company/business and dissolving the old business.

The difference between these three things can be seen from the legal entity status of each company in the process. Based on what Yahya Harahap stated in his book Limited Liability Company Law, the merger of companies that merged with their legal entity status will disappear and end, then if the acquisition occurs there will be a change in the control of the company and the legal entity will remain, while consolidation is a method that eliminates or merges first. first a legal entity and then jointly establish a new legal entity in which all assets and liabilities of the consolidating companies are transferred to the newly created company. In terms of assets and liabilities of the merging company, the assets and liabilities will be transferred to the merger recipient company, in the acquisition of assets and liabilities remain attached to the company whose shares have been taken over.

Motives for Mergers and Acquisitions

Economic Motive

The essence of the company’s goals from a financial perspective is how the company is able to create value for the company and shareholders. Mergers and Acquisitions have an economic motive whose long-term goal is to achieve that increase in value. Therefore, all activities and decision-making must be directed to achieve this goal. Strategic motives also include economic motives when mergers and acquisitions are carried out to achieve the company’s strategic position in order to provide a competitive advantage for the company. Usually companies do mergers and acquisitions to get economies of scale and economies of scope

Synergy Motive

One of the main motivations for companies to carry out mergers and acquisitions is to create synergies which are the overall value of the company itself. Synergy is generated through a combination of activities simultaneously from the strengths of the elements of the company that combine in such a way that the combined activities produce a greater effect than the sum of the company’s activities if they work alone. Synergistic effects can arise from four sources:

  • Operational savings resulting from economies of scale in production management, marketing or distribution;
  • Financial savings that include lower transaction costs and better evaluation by securities analysts;
  • The difference in efficiency means that the management of one company is more efficient and the assets of the weak company will be more productive after the merger; and
  • Increased market share due to reduced competitors

Diversification Motive

Diversification is a business diversification strategy that can be done through mergers and acquisitions. Diversification is intended to support the company’s business activities and operations in order to secure a competitive position. However, if you diversify further away from your original business, the company will no longer be in the corridor that supports core competencies. Besides providing the benefits of such as technology transfer and capital allocation, diversification can also bring disadvantages, namely the existence of cross subsidies

Non-economic Motive

Merger and acquisition activities are sometimes carried out not only for economic interests, but also for non-economic interests, such as prestige and ambition. Non-economic motives can come from company management or company owners and can occur because of:

Hubris Hypothesis
This hypothesis states that mergers and acquisitions are carried out because of the “greed” and self-interest of corporate executives. They want to have a bigger company. The bigger the company, the more compensation they receive. The compensation they receive is not only material but also recognition, appreciation, and self-actualization.

Owner’s Ambition
There is an ambition from the owner of the company to control various sectors and make merger and acquisition activities as a strategy to dominate other companies to build a “business empire”. This is common for owners who have control over the company’s decision making.

The benefits of mergers, acquisitions and consolidations can be in the form of company expansion, resolving financial problems or the threat of bankruptcy, increasing access to capital, changing company management which is considered problematic or to improve the quality of the company in the midst of market developments and also increasingly fierce business competition so that the company still has the existence of products or services. the services they offer.