On June 17, 2022, the Financial Services Commission (the "FSC") hosted a policy seminar for enhanced investor protection in the stock market, where it revealed its plan to pursue the following policy tasks:
Require prior disclosure of a share disposal plan to enhance transparency of insider trading-related information.
Put in place safeguards to protect minority shareholders of the acquired company for share transfers that result in a change of control.
※ Major foreign countries such as EU member states, the UK, and Japan have mandatory requirement to make a public tender offer for a percentage of shares for anyone wishing to gain management control by purchasing more than a certain number of shares.
Strengthen responses to unfair trade practices in the capital market by making investigational process and procedures more efficient, and expanding the use of administrative sanctions, such as administrative surcharges, to make enforcement actions more effective.
In particular, as noted in our March 18 newsletter (link), the Presidential election pledges and the transition committee’s policy handbook had included a pledge to shield minority shareholders from majority shareholders’ actions, such as the monopoly of management control premiums by major shareholders selling their shares; the FSC has now announced its plan to specifically review public tender offer rules and other relevant regulations currently implemented in other countries, to develop and implement regulatory improvements tailored to Korea. The FSC also mentioned requiring disclosure of a disposal plan for shares (including those offered in the form of stock options) sold by executives and other insiders, as well as a plan to regulate unfair trade practices.
For your information, in 2020, Lawmaker Lee Yong Woo proposed the Special Act on Listed Companies, introducing public tender offer rules. The bill’s goal is to allow minority shareholders to benefit from control premiums and increase shareholder value by (i) prohibiting transactions involving certain major shareholders when selling management shares and (ii) requiring public tender offers to an unspecified number of shareholders to give them a chance to sell their shares.
- If shares held by a related party under the Financial Investment Services and Capital Markets Act through purchase, etc. are 25% or more of the voting shares of a listed company, a public tender offer shall be made to an unspecified number of shareholders for no less than 50% of shares in the listed company (Article 19 of the Proposed Special Act on Listed Companies).
Depending on the structure of the regulatory system to be implemented, the new system could significantly impact the proposed transactional structures, prices (including control premiums) for large corporations, private equity funds, and others wishing to sell their publicly traded subsidiaries. If you plan to sell, buy, or merge a publicly traded subsidiary, you may want to keep an eye on the developments and implications of this change.