With an eye toward helping Korean firms maintain management control from hostile takeover attempts, the Korean government passed an anti-hostile M&A system called a “poison pill” in early March. The poison pill system allows stockholders to buy new shares at cheaper prices, or pay huge bonuses to management when there is a sign that hostile M&A bids will be made in an attempt to take over a company.
“Companies can spend more to build plants and create jobs by protecting themselves from hostile M&A attempts by using the poison pill system,” said a spokesperson at the Ministry of Justice.
The poison pill system is designed to encourage Korean companies to increase investment and create more jobs. According to the revised bill, Korean companies can introduce the poison pill system when the system can protect or enhance value of society or interests of shareholders in general shareholders meetings. Two thirds of the members of a board of directors must agree to execute the poison bill system before it can be activated.
If a Korean company adopts the program, those who attempt hostile M&A bids will face various difficulties, while the Korean company will need less money to protect its managerial rights. That is to say, the poison pill program makes those who plan hostile M&A bids pay more money when they purchase stocks from shareholders of a target company. Therefore, this increase in M&A costs could make those planning hostile M&A bids give up. Korean companies insist that the poison pill system protects highly profitable Korean companies from hostile M&A bids from foreign companies. However, the bill may not be passed at the National Assembly due to opposition, particularly from that of the Democratic Party.
Civic organizations are also opposed to the introduction of the poison pill system. “It will only help strengthen the managerial control of Chaebol founding family members. In addition, the poison pill system may be misused to undermine the democratic and transparent corporate governance structure of companies,” they said.