The Financial Services Commission (the “FSC”) unveiled a set of new policies with the aim to improve the M&A regulatory system in relation to listed companies by increasing the fairness of M&A transactions and procedures including mergers, business transfers, spin-offs and spin-off mergers, through the announcement of new policies (Link) and by holding a meeting to further discuss improvements to M&A regulations (Link). Subsequently, the FSC issued a legislative notice on proposed amendments to (i) the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the “FSCMA”), and (ii) the Regulation on Issuance and Disclosure of Securities (the “RIDS”) (Link) to codify the implementation of the new policies.

On November 19, 2024, the FSC announced that the proposed amendments to the Enforcement Decree of the FSCMA were approved during the cabinet meeting (Link). The amendments became effective from November 26, 2024.

The amendments to the Enforcement Decree of the FSCMA and the RIDS contain provisions intended to (i) relax regulations on calculating merger prices between non-affiliates, (ii) strengthen merger disclosures, and (iii) improve the external valuation system. The details of the amendments are as follows:
 

• The previous version of the Enforcement Decree of the FSCMA (i.e., prior to the amendment) applied uniform rules on how to calculate merger prices in the restructuring of listed companies through mergers, among others. More specifically, merger prices (which serve as the basis for merger ratios) for listed companies were required to be calculated by applying a statutory formula based on market prices (i.e., base stock prices) and could only decrease or increase by up to a certain percentage (i.e., ±10% between affiliates and ±30% between non-affiliates). Critics argued that such calculation method hindered structural improvements, which could be achieved through arm’s-length bargaining between parties on equal footing.
   

• In order to address this issue and enhance the global integrity of the M&A regulatory system, the amended Enforcement Decree of the FSCMA excludes mergers between non-affiliates from the scope of application of the regulations that govern the calculation of merger prices. This change has been adopted in consideration of the regimes in the US, Japan, EU, among others, that require the feasibility of mergers to be secured through disclosures and external valuations, in lieu of directly regulating merger prices.
   

• Under the Enforcement Decree of the FSCMA and the RIDS before the amendments, obtaining an external valuation was mandatory for mergers between a listed company and an unlisted company. However, critics pointed out that the lack of regulations governing the conduct of external valuers made it difficult to ensure the fairness and credibility of external valuations.
   

• Under the amended Enforcement Decree of the FSCMA and RIDS, external valuations are mandatory for mergers between non-affiliates that are exempt from the regulations governing the calculation of merger prices. As for mergers between affiliates, the consent of the statutory auditor of the listed company (or a resolution of the audit committee, if any) is required to select an external valuer.
   

• The amended Enforcement Decree of the FSCMA and the RIDS also require external valuers to establish quality control standards, with which they must comply when performing valuation services in connection with mergers, and to disclose the results of quality inspections. In addition, an external valuer may not act as external valuer for a merger in which it was involved in the calculation of the merger price.
   

• The quality control standards must specify matters relating to the maintenance of independence, objectivity and fairness in the course of performing services in connection with mergers, as well as the obligation to review and prevent potential conflicts of interest.
   

• The amended Enforcement Decree of the FSCMA and RIDS require the board of directors of the listed company to prepare and disclose a written statement, which sets forth (i) its opinion on the purpose and anticipated effects of the merger, (ii) its opinion on the fairness of transaction terms, such as the merger price and merger ratio, and (iii) any dissenting directors’ reasons for objecting to the merger.
   

The promulgation of the amended Enforcement Decree of the FSCMA and RIDS is expected to result in significant changes to practices related to (i) the structuring of, and negotiations of transaction terms with respect to, mergers, spin-offs, spin-off mergers, comprehensive share swaps and transfers and business transfers of listed companies, and (ii) the execution and performance of agreements for such transactions.

Further, considering that non-affiliated parties in restructuring transactions such as mergers will have more discretion to determine the merger ratio, minority shareholders and other stakeholders may raise issues regarding the fairness of the terms of those transactions, at the general meeting of shareholders or in the course of implementation of such transactions. Therefore, it will be important to ensure (i) fairness in the selection of an external valuer and in its valuation process, and (ii) the integrity of the resolution of the board of directors and its written statement, which will be subject to the disclosure requirements mentioned above.

[Korean Version]