Merger may take longer

The Jakarta Post ,  Jakarta   |  Sat, 03/28/2009 1:37 PM  |  Business

Due to its complexity, the merger of state pharmaceutical firms PT Kimia Farma and PT Indofarma may take longer than first thought.

State Minister for State Enterprises Sofyan Djalil said Friday that the merger process, being carried out as part of the government's effort to consolidate state companies in certain sectors, could take longer than the nine months initially estimated.

"The process first involves approvals from the privatization team, the Ministry of Finance and House of Representatives followed by the stakeholders' general meeting. It's a long process in itself, so we cannot guarantee *the merger will meet the scheduled deadline*," said Sofyan.

He said his ministry would still need approval from other stakeholders before the merger process could commence.

"According to the legal process, our ministry acts as the proxy but the real stakeholder is the Finance Ministry," he said.

"We also have not yet called on the stakeholders' general meeting or discussed this with the House of Representatives, so there is still a long way to go."

Kimia Farma president director M. Sjamsul Arifin announced the merger plan on Mar. 17, claiming the feasibility studies and legal processes for the plan would be completed within six to nine months while the new entity would start operating as early as the first quarter of next year.

Sofyan said the merger was necessary to increase the companies' competitiveness in the industry, but in practice there were a lot of steps needed to be completed first.

"In the pharmaceutical industry, our state firms realistically only play a small part because we're focusing more on generic drugs," he said.

Apart from Kimia Farma and Indofarma, the ministry had another pharmaceutical firm, PT Bio Farma, which was not included in the merger plan.

"Bio Farma is unique because it specializes in vaccine research. The ministry's blueprint for the company is that it will stand as a single company," Sofyan said, offering explanation for why it was not included in the wider merger plans.

Three days following Sjamsul's announcement, Kimia Farma's share price at the Indonesia Stock Exchange had risen by 81.3 percent from Rp 75 to Rp 136, while Indofarma's stocks hiked by 82.3 percent from Rp 51 to Rp 93.

On Friday, Kimia Farma closed at 124 while Indofarma ended the session at Rp 70.

The soaring stock value has raised suspicions that the merger announcement was staged deliberately to bolster the share prices of the two companies.

However Sofyan denied these accusations, saying the increase in share values was purely because a result of market mechanisms and did not involve any foul play.

The government, through Sofyan's ministry, is trying to consolidate state companies to increase efficiency and competitiveness.

A presidential regulation issued last year was to serve as a guide toward reducing 139 state firms to 89 by the end of 2010 through re-grouping, holdings, privatizations, and mergers, though none so far have materialized.

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