Governance Reform Campaign at Its Final Stage
The number of merger and acquisition (M&A) deals involving affiliates of conglomerates plunged in the first half of this year, suggesting that the government’s push for corporate governance reform has reached its final stage.
A total of 349 M&A deals worth 201.90 trillion won (US$166.72 billion) were carried out in the first half of this year, up from 336 deals and 175 trillion won (US$144.51 billion) a year earlier, according to a report released by the Fair Trade Commission (FTC) on Aug. 25.
Of the total, large business groups accounted for a small share. M&A deals involving affiliates of conglomerates with more than 5 trillion won (US$4.13 billion) in assets were 77 in number and 4.20 trillion won (US$3.47 billion) in value.
The figures represented a 28 percent decrease in the number of deals a 74.5 percent plunge in value compared to the first half of last year. In particular, the number of M&A deals between affiliates of big business groups for restructuring purposes dropped from 57 in 2018 to 30 this year.
The drop suggests that the Moon Jae-in administration’s governance reform campaign, which has been pursued as part of its drive for chaebol reform, has entered its final stage, market experts say. The government has been asking conglomerates to adopt a holding company system and remove cross shareholdings for transparent business management. It has also been tightening regulations on intra-group transactions to prevent owner families from amassing personal wealth through sweetheart deals. In fact, the number of M&A deals between affiliates of conglomerates showed a whopping 216.6 percent increase on year in the first half of last year as Lotte Group merged six unlisted affiliates, including Lotte International, Lotte IT Tech, Daehong Communications, Fuji Film Korea, Lotte Logistics and Lotte GRS, under government pressure for governance reform.
The combination of enterprises is expected to occur more actively in the second half. Currently, the FTC is screening applications for large M&A deals in the paid broadcasting and shipbuilding sectors. Cases in point include mergers between LG Uplus and CJ Hello, SK Broadband and t-broad and Korea Shipbuilding & Offshore Engineering and Daewoo Shipbuilding & Marine Engineering.
Meanwhile, M&A deals carried out by affiliates of conglomerates toward outside companies amounted to 47 in number and 700 billion won (US$578.03 million) in value, a drop of three cases and 1.1 trillion won in value compared to the first half of last year. In addition, the number and the amount of M&A deals concluded by foreign companies came to 79 and 189.20 trillion won (US$156.23 billion), up 12.9 percent and 23 percent from last year.