SOUTH KOREA Law and Practice Contributed by: Ki Wook Kang, Kyung Chun Kim, Junghae Kang and Do Kyeom Kim, Lee & Ko
4.4 Dealings in Derivatives Dealing in derivatives is permitted subject to certain filing/reporting obligations. See 4.5 Filing/Reporting Obligations . 4.5 Filing/Reporting Obligations Derivative transactions are subject to certain report - ing obligations and approval requirements under the foreign exchange regulations. Further, derivatives with listed shares as the underlying assets are gen - erally subject to public disclosure obligations if the purchaser of such derivatives is entitled to acquire title to the listed shares. Under the MFRTA, relevant merger filing requirements are only triggered when the purchaser actually acquires the shares by exercising rights attached to the derivatives. 4.6 Transparency Shareholders of listed shares must make known the purpose of their acquisition in the 5% Disclosure Report. See 4.2 Material Shareholding Disclosure Threshold . In share purchase transactions, the target company is generally not a party to the transaction and thus is not required to disclose the deal. However, if the largest shareholder of a listed company changes, or a share purchase transaction which involves a change in the largest shareholder is executed, such fact must be disclosed. However, the seller may be subject to pub - lic disclosure requirements, particularly if it is a public company. In the case of business transfers or mergers where the target company is a party to the transaction, such target company may be subject to public disclo - sure requirements. In such case, disclosure is required at the time of approval of the transaction by the board of directors, which normally lands on or around the execution date of the transaction documents. In the context of a tender offer, it should be noted that in Korea, a target company and its board are not active participants in the tender offer process. Further, as described in 4.3 Hurdles to Stakebuilding , defence mechanisms such as poison pills and golden para - 5. Negotiation Phase 5.1 Requirement to Disclose a Deal
the shareholding of an investor, an update report must be filed with the FSC and KRX within five business days of such change. When filing the 5% Disclosure Report, the investor must indicate whether its invest - ment in the company demonstrates a passive portfolio investment or an intention to exert influence over the management of the company. If the shareholding of the investor reaches 10% or more of the issued and outstanding voting shares of the listed company or the investor otherwise gains the authority to influence the management of the com - pany by, for example, the election of the majority of the board of directors of the company, a report must be filed with the Securities and Futures Commission (SFC), a subcommittee of the FSC, and KRX within five business days of the relevant event that has trig - gered the reporting obligation (the “10% Disclosure Report”). Thereafter, any additional change in the shareholding of the investor in the company must be reported to the SFC within five business days of such change. Both the 5% Disclosure Report and the 10% Disclo - sure Report must be publicly disclosed and there - fore a bidder’s stakebuilding is significantly affected by such disclosure (in particular, the 5% Disclosure Report) since the purchase price of the shares as well as the purpose for which the purchase of the shares A company is prohibited from implementing any high - er or lower reporting thresholds, either in its articles of incorporation, by-laws, or by way of any other means, that would change the rules triggering the filing of the 5% Disclosure Report or the 10% Disclosure Report. Further, mandatory tender offer obligations (see 6.2 Mandatory Offer Threshold ) will also likely negatively impact a bidder’s stakebuilding strategy. is made is disclosed to the public. 4.3 Hurdles to Stakebuilding Defence mechanisms to stakebuilding activities in the context of hostile takeovers such as poison pills, gold - en shares and golden parachutes, which are some - times found in other jurisdictions, are not permissible under Korean law.
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