By Introducing Mandatory Tender Offer System
Financial authorities are introducing a mandatory offer system as a way to protect minority shareholders from mergers and acquisitions (M&As) in the form of a share sale and purchase.
M&As in this form have not offered ordinary shareholders an opportunity to sell their shares. In the future, when a company acquires another company through this method, it must purchase stocks from ordinary shareholders at a price that includes premiums for management rights.
Kim Gwang-il, head of the Fair Market Division of the Financial Services Commission (FSC), laid out this plan at a seminar held at the Korea Exchange in Yeouido, Seoul on Dec. 21.
A mandatory tender offer is a system in which a company must acquire a certain percentage of shares through a tender offer when acquiring shares sufficient to secure management rights to a listed company. In the Korean M&A market, a share sale and purchase method (84.3 percent) is common. But it has been pointed out that this method is insufficient in protecting shareholders of the acquired companies. The mandatory offer system is being promoted to give shareholders of acquired companies an opportunity to sell off their stocks during M&A processes.
Under the new system, if a company becomes the largest shareholder of a listed company with a 25 percent or more stake through an M&A deal, the company must take a tender offer for a total of 50 percent or more of the shares, including a controlling stake and ordinary shareholders’ shares. At this time, the acquiring company must purchase shares from ordinary shareholders at the same price as that offered to controlling shareholders.
The core of this system is the purchase volume (50 percent of total stocks plus one or more shares). For example, if an acquiring company purchases 30 percent of the largest shareholder’s stake in an M&A target company, the amount corresponding to the tender offer is 20 percent. At this time, if ordinary shareholders’ stake in the tender offer is 10 percent, it is not necessary to fill the remaining 10 percent. However, if the shareholding ratio of ordinary shareholders in a tender offer exceeds 20 percent, the acquiring company will purchase the shares in a proportionate distribution method.
Experts who participated in the panel discussion on the day evaluated the system as a big step toward advancing the capital market and resolving the undervaluation of the Korean stock market. However, they noted that there were points to be supplemented in the long term, such as expanding purchase targets for the effectiveness of the system.
The FSC plans to gradually expand tender offer targets for the smooth settlement of the system. In addition, it said that it will push ahead with the revision of the Capital Markets Act for the introduction of the system in the future and grant a grace period of at least one year to let the system adapt to the market.