Case : Indofood Acquisition

ETIKA DAN TATA KELOLA

G23 Group 2:
Irham Suharja (NPM 2306300552)
Rinaldi Wilopo (NPM 2306189635)
Agung Wahyu (NPM 2306299765)
Putri Kartika (NPM 2306300930)
Irena Shafira (NPM 2306189300)
Ferlita Aprillia (NPM 2306300312)
Background
Background
▪ PT Indofood CBP Sukses Makmur or ICBP is a
producer of various types of food and drinks in
Indonesia. This company was founded on August
14 1990 by Sudono Salim.
▪ In 2020, ICBP expanded its instant noodle business
by acquiring Pinehill Company Limited (PCL), an
instant noodle manufacturer operating in Africa, the
Middle East and Southeast Europe. ICBP's move to
acquire all PCL shares worth US $ 2.99 billion or
IDR 44.1 trillion is expected to increase the sales
volume of instant noodles in the long term.
▪ ICBP's acquisition of PCL has become a topic of
discussion among investors, where it can be said
that PCL still has a relationship because more than
50% of the shares are owned by Antono Salim,
who is also the main director of ICBP.
 PROBLEM
02
IDENTIFICATION
Problem Identification

What are the control rights and cash flow rights of shareholders in acquisition
01 decisions?

What was ICBP's ownership structure before and after the acquisition decision, both
02 directly and indirectly? and how its impact on corporate governance practice?

Is the acquisition process carried out by ICBP in accordance with the principles of rights
03 and equal treatment of shareholders and in accordance with the results of the GMS?
 Questions for Case
What is the percentage of control rights and cash-flow rights of Mr. Anthoni Salim as controlling shareholder in ICBP? Show
01 your calculations. Based on the results of your calculations, explain the incentives of ICBP's controlling shareholders to
expropriate the wealth of non-controlling shareholders in ICBP. Why is that?

02 Based on the Limited Liability Company Law and relevant OJK regulations, explain the mechanism to ensure that transactions
with related/affiliated parties will not harm shareholders, especially non-controlling shareholders.

The ICBP acquisition

Is the Board of Directorsprocess
believes that the PCL acquisition
carried out by ICBPtransaction does not require with
in accordance the approval of ICBP's independent
the principles shareholders;
of rights and equalwhereas, in
03 Hong Kong the transaction requires approval from First Pacific's independent shareholders. By referring to rule IX.E.1 regarding the definition of conflict
treatment
of ofagree
interest, do you shareholders
with the opinionandof theinICBP
accordance with
Board of Directors theNUMBER
(Latest: results42of the GMS?Why is that? If it is based on the principles
/POJK.04/2020?
of Good Corporate Governance, do you think this transaction requires approval independent shareholders? Present your argument.

Is the your
Present acquisition process
group's study carried
of the market outtobyICBP's
reaction ICBP in accordance
planned acquisition ofwith the
Pinehill principles
(Hint: The marketof rights
reaction and equal
is reflected in a.
04 changes in ICBP's price at the time of the announcement of the acquisition plan (There were two announcements) b. reactions of stock
treatment of shareholders and in accordance with the results of the GMS?
analysts/public investors in internal and external media country. State the reasons why this reaction occurred.

05 In the end, the acquisition transaction was approved by independent shareholders at the GMS at First Pacific
Investment and shareholders at the GMS at ICBP. What is the attitude of non-controlling shareholders at the GMS?
03 ANALYSIS
CORPORATE GOVERNANCE IN INDONESIA
Teory Agency:
Conflict Of Principal with Agent
1. Self Interest
• Conflict between Shareholders and
Managers
• Conflict between Creditors and
Shareholders ( Deviden, Asset Subtitution,
Underinvestment, Claim dilution)
• Conflict between Controlling Shareholders
and Non-Controlling Shareholders
• Conflict between Stakeholders and
Shareholders/Managers (Employess, local
communities)
2. Asymmetric information
The agent as the party in charge of managing
the company has more information about the
company than the principal
3. Weak Supervision of Agent
• Overcoming conflicts of interest (teory agency)
• Produces a good financial system
• Increase company value through more efficient
management, more optimal asset utilization,
better employment policies, and various other
policies that increase the company's ability to
generate profits
• Reduce the risk of a financial crisis
• Good financial system, lower capital costs,
efficient company management, adequate risk
management, and good stakeholder relations
Suatu struktur dan proses yang digunakan untuk Pillars of Corporate Governance
mengarahkan dan mengelola usaha untuk mencapai • Ethical Behavior
kemajuan usaha dan akuntabilitas korporasi dengan • Corporate Accountability
tujuan akhir menciptakan nilai korporasi dan kekayaan • Transparency
pemegang saham secara berkelanjutan dengan • Continuity
memerhatikan kepentingan para pemangku
kepentingan (KNKG, 2021, hal. 1).
GOVERNANCE PRINCIPLES
a. CG principles of the G20 / OECD
• Principle I: Ensure a Basic Framework for
Effective Corporate Governance
• Principle II: Rights and Fair Treatment of
Shareholders and the Key Role of Share
Ownership
CORPORATE • Principle III: Institutional Investors, Capital
GOVERNANCE Markets, and Other Intermediaries
• Principle IV: The Role of Stakeholders in
Corporate Governance
• Principle V: Openness and Transparency
• Principle VI: Board Responsibilities
b. PUGKI 2021
• Prinsip 1: Peran dan Tanggung Jawab
Regulation Direksi dan Dewan Komisaris
ASSESSMENT • UU Pasar Modal dan PT • Prinsip 2: Komposisi dan Remunerasi
INSTRUMENTS • Otoritas Jasa Keuangan Direksi dan Dewan Komisaris
1. Corporate Governance • Peraturan untuk Bank • Prinsip 3: Hubungan Kerja antara Direksi
Watch (CG Watch). Umum dan Bank dan Dewan Komisaris
2. ASEAN Corporate Perkreditan Rakyat • Prinsip 4: Perilaku Etis
Govenance Scorecard • Peraturan untuk Investor • Prinsip 5: Manajemen Risiko, Pengendalian
(ASEAN CG Scorecard). Institusi (Asuransi, Dana Intern dan Kepatuhan
Pensiun, Manajer Investasi) • Prinsip 6: Pengungkapan dan Transparansi
• Peraturan untuk BUMN • Prinsip 7: Hak-hak Pemegang Saham
• Inisiatif Tata Kelola Lainnya • Prinsip 8: Hak-hak Pemangku Kepentingan
Control Rights and Cash Flow Rights Definition

Control Rights: Cash Flow Rights:

The ability of shareholders to control the Shareholders' rights to receive cash or
company through the use of voting rights at dividends derived from profits are in
the GMS. accordance with the shareholders'
ownership.
Calculation in Ownership Chains:
Calculation in Ownership Chains:
a. 1 ownership chain
Minimum holding percentage across a. 1 ownership chain
the chain Product of holding percentage across
b. More than 1 ownership chains the chain
Sum of the minimum holding b. More than 1 ownership chains
percentage from each chain. Sum of the product of holding
percentage from each chain.
Illustration: Control Rights and Cash Flow Rights Calculation
(Pyramidal Holding)

Firm W Control Right of Firm W in Firm Z:

Min(40%, 25%, 80%) = 25%
40 %
Cash Flow Right of Firm W in Firm Z:
40% * 25% * 80%= 8%
Firm X

25 %

Firm Y

80 %

Firm Z
 Illustration: Control Rights and Cash Flow Rights Calculation
(Cross Holding)

Firm W Control Right of Firm W in Firm Z:

Min(40%, 30%) + Min(25%, 80%) = 55%
40 % 25 %
Cash Flow Right of Firm W in Firm Z:
(40% * 30%) + ( 25% * 80%) = 32%
Firm X Firm Y

30 % 80 %

Firm Z
Illustration: Expropriation of Control Rights

Investor A
Investor A
Control right Firm X: 70% Firm Y: 60%
Cash flow right Firm X: 70% Firm Y: 42%
70 %
Jika Investor A, dengan hak kendali 60%, mendorong
Other keputusan transaksi dimana Firm X untung Rp 100jt
Firm X namun Firm Y rugi Rp 100jt, maka:
Investors
- Investor A untung Rp 70jt akibat CFR Firm X
- Investor A rugi Rp 42jt akibat CFR Firm Y
60 % 40 % Sehingga, Investor A mengalami total untung Rp 28jt
atas transaksi ini, namun investor lain di Firm Y
Firm Y mengalami rugi Rp 40jt.

Ilustrasi ini menunjukkan semakin besar hak kendali

seorang investor dibandingkan hak arus kas nya, maka
semakin besar insentif untuk melakukan ekspropriasi
yang merugikan pemegang saham minoritas atau
pemegang saham non pengendali.
Control Rights and Cash Flow Rights of Shareholders in Acquisition Decisions

Point of View Case

- Highest decision Indofood
taker is decision Consideration:
PEMEGANG SAHAM
from Annual MINORITAS
- Proposed
General Meeting of Transaction Cost
Shareholders and mostly funded by
Extraordinary loan which give
General Meeting of impact. Ration DER
Shareholders Acquisition & DAR significant
Decisions
PE PEN
jump and decrease
ME GE

E
- Majority ROA and ROE

NC
MA Y
GA ND

RF MPAN
Shareholders and NG ALI

OR
CO
SA
Minority HA - Exercising Proposed

PE
Shareholders have Transaction, ICPB
M

voting right (parent company) will

increase revenue and
net profit around 20%
ICBP Structure Before and After Acquisition

The impact of changes in shareholding structure following an acquisition can be substantial. It can
influence various aspects of corporate governance, from the board structure and policies to stakeholder
management and long-term strategy. Companies often need to adapt their governance practices to align
with the new expectations and objectives brought in by the new shareholders.
ANSWER FOR CASE QUESTIONS
What is the percentage of control rights and cash-flow rights of Mr. Anthoni Salim as controlling shareholder in ICBP?
01 Show your calculations. Based on the results of your calculations, explain the incentives of ICBP's controlling shareholders
to expropriate the wealth of non-controlling shareholders in ICBP. Why is that?

Percentage of Mr. Anthoni Salim share

ownership describe as follow:

ICBP - % of control rights Mr. A Salim = 44,3%

- % cash-flow rights Mr. A Salim =
INDF Public
(80,53%) (19,74%) - ((44,3% of 50,07%) + 0,02%) of 80,53% = 17,88%

Direct investation
Mr. A Salim
First Pacific Ltd. Public
(50,07%) (49,91%)
(0,02%) Cross-shareholding structure (a company with shares are traded
to the public (INDF) owns shares of a company with shares are
Indirect also traded to the public (ICBP) non-controlling shares :
investation Mr. Others
Easily exposed to expropriation by controlling shareholders
A Salim (55,7%)
against non-controlling shareholders.
(44,3%)
Shown from % control rights > % cash-flow right
ANSWER FOR CASE QUESTIONS
02 Based on the Limited Liability Company Law and relevant OJK regulations, explain the mechanism to ensure that
transactions with related/affiliated parties will not harm shareholders, especially non-controlling shareholders.
Article 3 (Limited Company UU)
(1) Company shareholders are not personally
responsible for agreements made on behalf of the
Company and are not responsible for losses to the
Company in excess of the shares owned.
(2) The provisions as intended in paragraph (1) do not
apply if:
a. the Company's requirements as a legal
entity have not been or are not fulfilled;
b. the shareholder concerned, whether
directly or indirectly, in bad faith, uses the
Company for personal interests;
c. the shareholder concerned is involved in an
unlawful act committed by the Company; or
d. the shareholders concerned either directly
or indirectly unlawfully use the Company's
assets, which results in the Company's assets
being insufficient to pay off the Company's
debts.
OJK has established new regulations Number
42/POJK.04/2020 concerning Affiliate
Transactions and Conflict of Interest
Transactions. This regulation was created to
ensure that transactions taking place with affiliated Article 3:
parties do not harm shareholders, especially A. Using an appraiser to determine the
non-controlling shareholders. The scope of fair value of the object of the Affiliated
transactions regulated in POJK 42/2020 is as Transaction and/or the fairness of the
follows (Financial Services Authority of the Republic transaction in question;
B. Announce the disclosure of
of Indonesia, 2020):
information regarding each Affiliate
A. Investment in certain business entities, projects
and/or business activities; Transaction to the public;
B. Purchase, sale, transfer, use, exchange of assets C. Submit the disclosure of information
or operating segments; as intended in point d and supporting
C. Acquisition, disposal, and/or use of services; documents to the OJK; And
D. First obtain approval from
D. Leasing assets;
Independent Shareholders at the
E. Lending and borrowing funds including their
General Meeting of Shareholders
transfer;
(GMS)
F. Guaranteeing assets of public companies and/or
controlled companies for loans from other parties;
G. Providing company guarantees
ANSWER FOR CASE QUESTIONS
The ICBP Board of Directors believes that the PCL acquisition transaction does not require the approval of ICBP's independent
Is the acquisition process carried out by ICBP in accordance with the principles of rights and equal
shareholders; whereas, in Hong Kong the transaction requires approval from First Pacific's independent shareholders. By referring to
03 treatment
rule of shareholders
IX.E.1 regarding the definition ofand inofaccordance
conflict with
interest, do you agreethe
withresults of of
the opinion thetheGMS?
ICBP Board of Directors (Latest: NUMBER
42 /POJK.04/2020? Why is that? If it is based on the principles of Good Corporate Governance, do you think this transaction requires
approval independent shareholders? Present your argument.

Our opinion:

BoD standpoint does not align with POJK and GCG principles and need to be re-evaluate.
In accordance with POJK (affiliated or containing transactions conflict of interest) requires approval
from independent shareholders, in this case Fist Pacific, at the GMS for an affiliated transaction or
one that contains a conflict of interest to take place.
Based on GCG principles, the PCL acquisition transaction requires ICBP independent shareholder
approval. When directors make decisions without considering the rights or opinions of other parties, the
principles of independence and fairness have been violated.
ANSWER FOR CASE QUESTIONS
Is the your
Present acquisition process
group's study carried
of the market outtobyICBP's
reaction ICBP in accordance
planned acquisition ofwith the
Pinehill principles
(Hint: The marketof rights
reaction and equal
is reflected in
04 a. changes in ICBP's price at the time of the announcement of the acquisition plan (There were two announcements) b. reactions of
treatment of shareholders and in accordance with the results of the GMS?
stock analysts/public investors in internal and external media country. State the reasons why this reaction occurred.

a. Changes in ICBP’s price

-First announcement (Feb 2020):
PT Indofood CBP Sukses Makmur Tbk (ICBP) shares fell by 6.54%
-Second announcement (Mei 2020):
PT Indofood CBP Sukses Makmur Tbk (ICBP) shares fell by 7,3%
b. Reaction of stock analysis/ public investor in internal and external media

Head of Research Praus Capital, Alfred
Nainggolan considers this to be a negative
market reaction to corporate actions which is
quite surprising to investors, considering that
there is no element of urgency in the acquisition
step (CNBC, 2020).
Chris Apriliony, an analyst from Jasa Utama Capital share opinion based on
share price movements, the impact of the acquisition is not very favorable due
to the statement that the acquisition was mostly financed by debt. Therefore,
he believes investors are worried about ICBP's future finances and INDF. In
the midst of uncertain conditions and a sluggish economy at that time,
investors would prefer to invest in companies that have strong financial
balance sheets (The Jakarta Post, 2020).

→ Based on above study, the overall market reaction to the acquisition is negative
ANSWER FOR CASE QUESTIONS
In the end, the acquisition transaction was approved by independent shareholders at the GMS at First Pacific
05 Investment and shareholders at the GMS at ICBP. What is the attitude of non-controlling shareholders at the
GMS?

On Special GMS (17/07/2020) at Hong Kong, Independent
shareholder First Pacific Co Ltd agreed to acquisition
Pinehill Company Ltd.
On RUPSLB (3/8/2020), ICBP shareholder agreed to
acquisition Pinehill Company Ltd.
Corporate Governance where all shareholders have the
Non-controlling shareholders do not have
the right to vote. This is related to Hong
Kong regulations which assume that this
party is not considered an independent
shareholder and majority shareholder who
has the right to vote under Indonesian
regulations at the RUPSLB.
This is not in accordance with the OECD Principles of
right to vote at shareholder meetings.

On Thursday, 27/08/2020 ICBP officially acquired PCL

04 CONCLUSION &
RECOMMENDATION
Conclusion
1. Control right is the ability of shareholders to control the company through the use of voting rights at
the GMS. Control right will have impact on acquisition decision.
2. Cash flow right is shareholders' rights to receive cash or dividends derived from profits are in
accordance with the shareholders' ownership. Acquisition decision will have impact on cash flow
right.
3. Cross-shareholding structure in ICBP make it easily exposed to expropriation by controlling
shareholders against non-controlling shareholders.
4. The impact of changes in shareholding structure following an acquisition can be substantial through
policies that will be made.
5. There are regulation from OJK, Limited Company UU, OECD principles that need to be concerned
when conduct decision with corporate governance practices.
Recommendation
1. Transparency and Disclosure: Ensure transparent communication about the acquisition decision-making
process through the GMS and RULPS.

2. Adherence to Regulations: Ensure compliance with all applicable laws, regulations, and corporate
governance guidelines such us OECD throughout the acquisition process. This helps in mitigating legal
risks and maintaining a good corporate reputation.

3. Risk Management: Develop a risk management strategy to identify and manage potential risks
associated with the acquisition. This should include financial, operational, market, and regulatory risks.

4. Independent Oversight: Strengthen its corporate governance structure to include a sufficient number of
independent directors who can objectively evaluate and monitor the acquisition process.

5. Evaluation: Establish a mechanism for periodic review and evaluation of the acquisition's progress and
performance, so any issues arising from conflicts of interest can be addressed promptly.
05 LESSON LEARNED
Lesson Learned

● Pillars of Corporate Governance are Ethical Behaviour, Corporate Accountability,

Transparency, and Continuity.
● In conducting Corporate Governance, we have to comply with all applicable laws,
regulations, and corporate governance guidelines such us OECD throughout all
decision making.
● The impact of changes in shareholding structure following an acquisition can be
substantial through control right of the shareholder and policies that will be made.
● BoD has a responsibility to ensure the company's success and protect the interests of
all shareholders, including conduct due diligence on acquisitions and assessing their
strategic fit and potential risks.
● Company should provide detailed information to its shareholders regarding the
acquisition, its rationale, potential benefits, and any potential conflicts of interest to
emphasize the importance of clear and comprehensive disclosure of corporate
information.
MM FEB UI

THANK YOU