FSCMA Amended to Promote Fair Valuation and Enhanced Disclosure of Listed Company Mergers and Restructuring

As previously discussed, the proposed amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”) promoting fair valuation and enhanced disclosure of listed company mergers and restructurings passed the National Assembly’s Political Affairs Committee on May 14, 2026 (Link), underwent review by the Legislation and Judiciary Committee on July 29, 2026, and was finally approved at the plenary session of the National Assembly on August 20, 2026. With only promulgation remaining, the amendment is drawing significant attention from the market and companies.

According to the Financial Services Commission, for corporate restructuring transactions involving listed companies—including mergers, spin-offs or spin-off mergers, transfers or acquisitions of material businesses or assets, and comprehensive share exchanges or transfers (each, a “Transaction”)—the amendment requires the applicable transaction value and merger ratio to be determined by assessing and applying a fair value, rather than being tied to the market price as of a particular point in time. The amendment is intended to remove incentives to distort stock prices and to ensure that a company's intrinsic value is properly reflected. It also promotes procedural fairness and transparency by requiring board review and an external appraisal of valuations, and disclosure of any special interests in the case of affiliate transactions, in protecting the interests of the company and all shareholders in such Transactions (Link).

The details of the amendment are set forth below. In addition, matters including the criteria and methods of Transactions, content and methods of disclosure, and criteria for external appraisal institutions have been delegated to Presidential Decree (Article 165-4(7)) and are expected to be further specified through subsequent amendments to subordinate regulations.

Enhanced Substantive Fairness of Share Value and Merger Ratio in Transactions involving Listed Companies

Where a listed company engages in a restructuring that constitutes a Transaction, the amendment expressly requires that share value, merger ratio, and other relevant terms be determined based on “fair value” calculated by comprehensively taking into account share price, asset value, earnings value and other factors (Article 165-4(1)).

This framework enables companies to determine substantive intrinsic value by referencing not only market prices but also a range of other valuation factors. The asset value of shares is determined as “net assets / total number of issued shares,” while earnings value generally refers to “a value reasonably calculated by applying valuation models such as the discounted cash flow method (DCF) or the dividend discount model (DDM) to calculate the value of future earnings.”

The amendment departs from existing valuation rules under FSCMA and its Enforcement Decree, which had relied on market-price-based calculations of merger value and related metrics in Transactions between listed companies and their affiliates. Under the amended regime, fair value must be evaluated and applied, rather than market price being adopted as of a specific point in time. Moreover, the amended regulatory framework has been elevated from Enforcement Decree to the statutory level.

The amendment also applies to remedies available to dissenting shareholders who exercise appraisal rights in opposition to a Transaction. Specifically, it replaces the prior market-price-based standard and provides that purchase price must be determined by the board of directors based on a comprehensive consideration of share price, asset value, earnings value, and other relevant factors (proviso to Article 165-5(3)). Accordingly, a previous inconsistency under FSCMA and its Enforcement Decree—where the market-price standard for determining Transaction value was based on weighted averages over one month, one week, and one day periods, while the market-price standard for determining appraisal price for dissenting shareholders was based on weighted averages over two months, one month, and one week periods—has now been resolved in a consistent manner. As before, if a shareholder objects to the purchase price, the shareholder may petition a court to determine the purchase price.

Enhanced Procedural Fairness through Board and Audit Committee Review and Disclosure Requirements in Transactions involving Listed Companies

The amendment also introduces measures to enhance procedural fairness in Transactions involving listed companies, including measures designed to address information asymmetry between controlling shareholders and minority shareholders. Specifically:

(i) when the board of directors approves a Transaction, the board must prepare and disclose an opinion statement addressing matters such as the purpose and expected benefits of the Transaction and the fairness of the transaction value (Article 165-4(2)); and
(ii) the company must obtain a valuation of the Transaction from an external appraisal institution and disclose the results of such assessment (Article 165-4(3)).

In particular, in the case of a Transaction between affiliates of a listed company:

(iii) the external appraisal institution responsible for valuing merger value and related matters must be selected by the statutory auditor or the audit committee of the company (Article 165-4(4)); and
(iv) the company must disclose any relationships of interest between its specially related persons—meaning specially related persons under Article 9(1) of the Monopoly Regulation and Fair Trade Law—and the counterparty to the Transaction, including debt guarantees, provisions of collateral, and concurrent service by officers or directors (Article 165-4(6)).

The amendment will be submitted to the government for expected promulgation following procedures such as approval by the State Council. It will take effect three months after the date of promulgation (Addendum, Article 1). With respect to specific cases, the amended law will apply to Transactions for which a board resolution is adopted after the amendment takes effect.

As previously noted, this amendment to FSCMA may be viewed as an implementation of Article 382-3 of the amended Commercial Code, which took effect on July 22, 2025, regarding directors’ duty of loyalty to protect shareholder interests. Relatedly, companies should note that the fairness-enhancing measures set forth in the Ministry of Justice’s “Guidelines on Directors’ Standards of Conduct in Corporate Restructurings,” as released on February 25, 2026 (Link)—including (i) the establishment and operation of a special committee, (ii) review by independent outside experts, and (iii) sufficient disclosure of information to shareholders—may take on greater procedural significance in Transactions involving listed companies in demonstrating compliance with the amended FSCMA.

Under the amended FSCMA, substantive and procedural oversight by financial supervisory authorities, including requests for improvement, may become significantly more robust in the review of securities registration statements, material event reports, and related filings for Transactions. Such review may focus on, among other things, the fairness of the merger ratio for the Transaction, the fairness of the exercise price for appraisal rights held by dissenting shareholders, and the adequacy of related disclosures.

In addition, legal disputes concerning the fairness of terms and whether directors have complied with duties to protect shareholder interests may increase across all stages of the Transaction, including:

(i) preliminary injunction actions relating to Transactions;
(ii) litigation on the merits challenging the validity of shareholder meeting resolutions approving Transactions; and
(iii) appraisal proceedings to determine the purchase price for shares held by dissenting shareholders.

The Supreme Court has consistently held, including in its Decision No. 2004Ma1022 rendered on November 24, 2006, that where there are no precedents of arm’s-length transactions for purposes of valuing unlisted shares in connection with the exercise of appraisal rights, various generally accepted valuation methodologies—such as the market value method, net asset value method, and earnings value method—should be used. The Court has also held that it cannot be categorically concluded that the valuation method under Article 84-7(1)2 of the Enforcement Decree of the Securities and Exchange Act or the valuation method under Article 54 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act must always apply. Rather, the relative weighting of valuation factors must vary depending on the circumstances of the relevant company, the characteristics of its industry, and other relevant considerations. These standards may also be considered in practice under the amended FSCMA.

Accordingly, listed companies that intend to proceed with Transactions by board resolution after the amended FSCMA takes effect should carefully prepare for heightened regulatory review by supervisory authorities and the increased risk of disputes with minority shareholders.

[Korean Version]

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