As we informed you previously, the Financial Services Commission (“FSC”) has announced plans to introduce a mandatory tender offer system in light of the need to protect minority shareholders’ interests relating to the payment of management control premiums in M&As of listed companies (Link).  It is understood that the FSC is currently preparing a proposed amendment of the Financial Investment Services and Capital Markets Act.

In this connection, FSC has also reviewed various improvement measures for the tender offer system, anticipating a rise in the volume of tender offers.  In particular, ways to ease the burden of securing advance financing for tender offers were discussed at the meeting of experts on providing support for corporate M&As, which was held on March 10, 2023 and chaired by So-Young Kim, Vice Chairman of FSC. 

Based on these discussions, FSC issued a press release on March 27, 2023 announcing its plan to expand the types of documents qualifying as proof of funds for tender offer.  On March 31, 2023, the Financial Supervisory Service also announced related work process improvement measures and an amendment to its Corporate Disclosure Practice Guidelines.

When submitting a tender offer statement, the offeror is required to attach proof of funds to demonstrate the ability to finance the tender offer.  Previously, the financial authorities have in principle recognized only deposits or short-term financial instruments (e.g., MMF, etc.) as acceptable funds in order to prevent the risk of payment default on the part of the offeror.  As a result, offerors were required to deposit purchase funds with a financial institution during the tender offer period (20 to 60 days), generating criticism that a tender offer incurs excessive opportunity costs (i.e., idle funds) due to advance financing requirements.  In view of the changes in the corporate M&A market, such as the reduced risk of payment default owing to developments in acquisition financing and the growing volume of tender offers, the authorities have now decided to expand the types of documents qualifying as proof of funds for tender offer in an attempt to balance the two needs of protecting shareholder interests (i.e., prevention of payment default by the tender offeror) and providing support for corporate M&As.

Key details of the improvement measures and the amended Corporate Disclosure Practice Guidelines, which took effect on April 1, 2023, are as follows.
 

[Comparison Table of Corporate Disclosure Practice Guidelines]

The enhancement of the tender offer system discussed above is significant in that it alleviates the key constraint, namely, the burden of securing advance financing for tender offers.  This, in turn, is expected to facilitate more efficient financing transactions for tender offers and would be worth monitoring closely.

[Korean Version]