The Korea Fair Trade Commission (“KFTC”) announced its latest plan to reform the merger filing and review regime (“Reform Plan”) through legislative amendments that will (i) expand the scope of exemptions from merger notification requirement, (ii) require the KFTC’s official notification of reasons for review period extension, and (iii) enable companies to submit voluntary commitments as remedies and obtain conditional clearance for anti-competitive mergers.

The Reform Plan reflects the short-term tasks included in the recommendations of the Merger Control Reform Task Force (“TF Recommendations”), which also include a number of mid- to long-term tasks for enhancing the merger filing and review regime in line with global standards.  Though not included in the current Reform Plan, the KFTC noted that it will continue discussions on implementation of those tasks as well going forward.

The KFTC plans to issue an advance notice for the proposed amendments contained in the Reform Plan in early 2023, and submit a draft bill to the National Assembly during the first half of 2023.  The KFTC will also conduct research on necessary amendments to subordinate laws.

Key details of the KFTC’s current Reform Plan and other long-term goals included in the TF Recommendations are as follows.

Reform Plan

A.   Expand scope of exemptions from merger notification requirement
 

The KFTC will expand the scope of exemptions from merger notification requirement to include the following types of transactions.  This is expected to lower the number of reported cases by about 40% compared to 2021.
 

• Inter-affiliate mergers: Statutory mergers/consolidations and business transfers involving two companies where one already has sole control over the other through a direct shareholding of at least 50% will be exempt from the merger notification requirement.  Currently, in recognition of their lack of anti-competitive concerns, inter-affiliate statutory mergers/consolidations and business transfers are eligible for the expedited simplified review process.

• Esblishment of PEFs: Establishment of PEFs will be exempt from the merger notification requirement as they have no substantive impact on competition at the time of establishment.  In recognition of the need to review participation in PEFs by strategic investors, however, a PEF’s acquisition of target companies will not be exempt from filings and the parties will have to submit detailed information about the transaction if a filing is required.

• Interlocking directorships of less than 1/3: As interlocking directorships of less than 1/3 (excluding the representative director) do not enable one company to exercise substantive influence on major decisions of the other, they will be exempt from the merger notification requirement.
   

B.   Require the KFTC’s official notification of reasons for review period extension
 

To enhance transparency of review results and predictability, the KFTC will improve its merger review procedures by requiring the case handler who intends to extend the review period, to officially notify the filing party of reasons for such extension (e.g., potential anti-competitive concerns).  This is expected to help companies swiftly decide whether to submit voluntary commitments to address those anti-competitive concerns.
 

C.   Allow companies to submit voluntary commitments as remedies and obtain conditional clearance
 

To enable swift and effective review of anti-competitive mergers, the KFTC will introduce a new system for allowing companies to submit voluntary commitments as remedies to address anti-competitive concerns during the review process.  Further, if the KFTC concludes that the proposed remedies are appropriate and sufficient for addressing the anti-competitive concerns, the KFTC will clear the transaction on condition that those remedies are implemented, rather than imposing corrective orders.  To encourage companies to actively submit the most effective remedies, the KFTC will also introduce an expedited process for concluding its review through a small-committee hearing (excluding transactions that could have a significant impact on society or involve multiple issues, which will continue to be deliberated through full-committee hearings).  By doing so, the KFTC expects to encourage more companies to submit a highly effective and feasible list of voluntary remedies, which would both address anti-competitive concerns in a timely manner and raise the efficiency of its merger review process.
 

Other Long-Term Goals
 
A.   Introduce a dual-phase merger review system
 

In the long term, the TF Recommendations ask the KFTC to consider a legislative package necessary for introducing a dual-phase merger review system similar to the system in the US and EU, where an in-depth Phase 2 review is only initiated for contentious transactions.  The recommended legislative package contains changes necessary for establishing a more sophisticated review procedure that will ensure the separation of the two phases.
 

B.   Introduce universal pre-closing filing requirement and enhancement of Merger Filing Guidelines
 

To enhance the effectiveness of merger regulations in line with global standards, the TF Recommendations recognize the need for universally requiring pre-closing filings for all transactions, but suggest that this should be carried out on a long-term basis as it could increase the burden on companies and even now only 30% of reported transactions are eligible for post-closing filings.

The TF Recommendations also suggest that the KFTC raise the merger filing thresholds in consideration of the growing economy, and expand the scope mergers that would be reportable under the size-of-transaction test.