The Korea Fair Trade Commission (“KFTC”) issued an advance notice on a set of proposed amendments to its Merger Review Guidelines and Merger Filing Guidelines, which among others, aim to facilitate the filing of mergers undertaken for pure investment purposes and to expedite their review. The public comment period for the proposed amendments ends on November 7.
Through the proposed amendments, the KFTC hopes to (i) alleviate the burden on companies by allowing simplified review and simplified filing for additional types of mergers that do not typically require in-depth review, and (ii) more effectively respond to the increasing number of reportable merger transactions.
In particular, the proposed amendments expand the scope of mergers subject to simplified review1 and simplified filing2 to include mergers undertaken for pure investment purposes, such as investments in existing private equity funds (PEFs) and interlocking directorships that accompany investments in business ventures or startups.
The proposed amendments also supplement and expand the criteria for safe harbors3 in recognition that vertical and conglomerate mergers resulting in a combined market share of less than 10 percent in each relevant market are unlikely to restrict competition.
In drafting the proposed amendments, the KFTC consulted experts through meetings and by forming a special task force to assist in reforming its merger review regime. After gathering feedback from interested parties during the public comment period, the KFTC plans to finalize and enact the proposed amendments before the end of this year by obtaining the necessary approvals for enactment. The proposed amendments, if enacted, will apply to mergers whose filing obligation triggering event occurs after the date of enactment.
Key details of the proposed amendments are as follows.
Proposed Amendments to Merger Review Guidelines
1. Expand eligibility for simplified review to mergers undertaken for pure investment purposes
Under the current Merger Review Guidelines, establishment of institutional private funds is eligible for simplified review. The proposed amendments will also allow simplified review of investments in an existing institutional private fund by a new partner with limited liability, but not if the new partner with limited liability is a strategic investor who has agreed to jointly manage the institutional private fund with an existing managing member.
The proposed amendments will allow simplified review of interlocking directorships carried out as part of a transaction to acquire or establish a business venture or new technology company that are currently exempt from filing obligations.4 Although an investment in a business venture by a venture capital fund itself is not reportable, such investment often accompanies an interlocking directorship for general supervisory purposes. Potential reportability of such interlocking directorships has been a factor discouraging investment. To address this problem and ease the burden on companies, the proposed amendments will allow simplified review and simplified filing of such interlocking directorships.
The proposed amendments will also allow simplified review for acquisitions of real estate (e.g., land, warehouse, office building) by general companies for investment purposes; and any transactions (in addition to transactions types listed above) that are clearly undertaken for the purpose of pure investment purposes (e.g., when participation in business management is prohibited under law).
2. Update guidelines for simplified review of foreign-to-foreign transactions that would have no impact on the domestic market
Although the Merger Review Guidelines currently allow for simplified review of foreign-to-foreign transactions that would have no impact on the domestic market, the lack of guidance on how to assess such impact has raised the need for greater predictability for companies. To enable a more appropriate review of such mergers and enhance predictability for companies, the proposed amendments specifies a list for factors5 to consider when assessing the impact of a foreign-to-foreign transaction on the domestic market, and provides additional examples of eligible transactions.6
3. Expand safe harbor for non-horizontal mergers
Currently, the safe harbor criteria for non-horizontal (i.e., vertical, conglomerate) mergers are based on (a) concentration in the relevant market and each party’s market share and (b) whether the parties are among the top three players in the relevant market.7 The proposed amendments establish a statutory basis for presuming lack of anti-competitiveness, regardless of the current criteria, if the parties to the merger have a combined market share of less than 10 percent in each relevant market.
Proposed Amendments to Merger Filing Guidelines
The proposed amendments newly add four types of transactions to the list of mergers eligible for simplified filing, including (i) establishment of a project financing vehicle (PFV), (ii) investment in an existing institutional private fund, and (iii) interlocking directorship carried out as part of a venture capital fund’s investment in a business venture. Simplified filing will also be available for the formal notification of a merger that the KFTC found not to be anti-competitive during its preliminary review, and no significant changes in the information (e.g., regarding the transaction or market situation) have taken place since the preliminary approval.
But the general direction of the above amendment may have an exception for dominant or monopolized online platform service providers of which the growth and the scope of their service has been heavily dependent on the acquisition of other companies and start-ups in various area.
In a press release issued on October 21, the KFTC announced a plan for additional amendment to the Merger Review Guidelines that would not allow simplified review of conglomerate mergers by large-scale platforms. The goal is promoting competition in highly concentrated online platform markets, and the KFTC has outsourced a study on the details of such amendment, which will end later this year.
1 Mergers subject to simplified review, as they are deemed to raise no anti-competitive concerns, are swiftly reviewed within 15 calendar days (instead of the regular 30 calendar days) during which the KFTC merely verifies the accuracy of the information provided in the filing.
2 Among the types of mergers subject to simplified review, those for which it is easier to verify the accuracy of the required information are also eligible for simplified filing (i.e., the filing is made using a short form business combination report which limits the scope of information that needs to be submitted by the parties).
3 Mergers that meet a certain set of criteria (e.g., regarding market concentration, each company's market share) are considered to fall under the safe harbor (i.e., presumed not anti-competitive).
4 Share acquisition of or establishment of the following is currently exempt from filing obligations: (i) a startup or business venture by an SME establishment investment company or venture capital fund; (ii) a new technology business entity by a new technology venture capitalist or a new technology venture capital fund; (iii) a publicly offered fund (i.e., investment company as defined under Article 9(18)2 of the Financial Investment Services and Capital Markets Act); (iv) a company designated as a concessionaire of a public-private partnership project for infrastructure or a company established for investing in such concessionaire; and (v) a real estate investment company as defined under the Real Estate Investment Company Act.
5 Nationality, sales territory of the acquiring and target companies, the target company's current or planned sales territories, the Korean sales revenue of the target company, etc.
6 Formation of joint ventures for foreign resources development, transfer of fixed assets such as foreign power generation facilities, etc.
7 Non-horizontal mergers that satisfy the following requirements are considered to fall under the safe harbor: (i) HHI is less than 2,500 in each relevant market and the market share of each company is less than 25%, or (ii) the companies are not among the top three players in each relevant market.
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