The Politics of Economic Liberalization in Indonesia by Andrew Rosser

Author:Andrew Rosser [Rosser, Andrew]
Language: eng
Format: epub
Tags: Social Science, Ethnic Studies, General, Regional Studies
ISBN: 9781136855795
Google: wXtfwKzHA2EC
Publisher: Routledge
Published: 2013-07-04T05:48:37+00:00

Takeovers and Minority Shareholders’ Rights16

When the Indonesian capital market was deregulated in the late 1980s, Indonesian law provided no protection for minority shareholders in takeover situations. If majority shareholders in a company favoured a takeover, minority shareholders had little option but to go along with their decision. This left minority shareholders vulnerable to abuse by majority shareholders who could structure takeovers to benefit themselves at minority shareholders’ expense. This situation contrasted starkly with most developed countries where minority shareholders had long been granted certain rights which protected them from majority shareholder abuse in takeover situations. In Japan, for instance, shareholders who objected to a planned takeover either of or by the company in which they owned shares were legally entitled to be bought out by the purchasing company at a fair market price (Ffrench 1986:5). In the USA, dissenting shareholders from the selling company were entitled to petition a court for the fair cash value of their shares (Oesterle 1991:52).

In the years immediately following deregulation, many capital market investors expressed serious concern about the inadequate level of protection given to minority shareholders in takeover situations in Indonesia. The main cause for their concern was a dramatic increase in so-called ‘internal acquisitions’ by publicly-listed companies during these years. [Internal acquisitions are takeovers of other companies within the same group]. Investors claimed that most internal acquisitions in Indonesia resulted in a direct transfer of wealth from minority shareholders to majority shareholders because majority shareholders deliberately inflated the purchase price of the companies being taken over. This, it was argued, disadvantaged minority shareholders because it reduced the value of their holdings in the purchasing companies. By contrast, majority shareholders benefited substantially because, although the value of their holdings in the purchasing company was also reduced, this reduction was more than offset by the consideration they received for their stakes in the selling company. At the same time, because majority shareholders had absolute control of their public companies, they did not lose control of the companies being sold.17

According to the Indonesian Business Data Centre (PDBI), publicly-listed companies in Indonesia spent more than Rp4 trillion on internal acquisitions between 1989 and mid-1992 (See Table Two). By far the most expensive internal acquisition during this period was Indocement’s 1992 purchase of Bogasari Flour Mills (a major flour producer), Pertiwi Agung (the owner of the Wisma Indocement building), and the nine companies that make up the Indofood sub-group (a major instant noodle producer). All together, these companies cost Indocement over Rp1.7 trillion. The next four most expensive internal acquisitions during this period were, in order of value, Indah Kiat Pulp and Paper’s purchase of Sinar Dunia Makmur for Rp566 billion in 1992; Indocement’s purchase of cement producer Tridaya Manunggal Perkasa Cement for Rp542 billion in 1991; Lippo Pacific Finance’s purchase of six other companies within the Lippo group for Rp254 billion in 1992; and Dharmala Intiland’s purchase of the real estate companies Dharmala Land and Tanah Harapan Indah for over Rp177 billion in 1992. In group terms,

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