SOUTH KOREA Law and Practice Contributed by: Ki Wook Kang, Kyung Chun Kim, Junghae Kang and Do Kyeom Kim, Lee & Ko
If mandatory tender offers are introduced, the pur - chaser will be required to make a tender offer to acquire at least 50% + 1 share of the total issued shares of the target company less the number of shares the purchaser has acquired from the seller in the transaction in which the control of the target is changed, at the same price as the price of the shares at which the purchaser acquired them from the seller. 6.6 Requirement to Obtain Financing Although it is possible to make private deals condi - tional on the procurement of financing by the bidder, it is very rare to find “financing-out” condition prec - edents in Korean M&A transactions. In the case of tender offers, making the tender offer conditional on the successful financing by the bidder is not permitted in Korea. 6.7 Types of Deal Security Measures In private deals, the parties can agree on break- up fees, reverse break-up fees or any other similar arrangements. In Korean M&A transactions, it is quite common for the purchaser to pay a deposit (usually 10% of the purchase price) at the time of signing. If such deposit is paid, and if the deal is terminated due to reasons attributable to the purchaser, the deposit vests in the seller. As a counter to such scheme, it is also quite often the case that the purchaser requests that the seller pays double the deposit if the deal is terminated due to rea - sons attributable to the seller. That is, the deposit will function as a break-up fee and a reverse break-up fee. There have been several cases that specifically exclude COVID-19 and similar infectious diseases or pandem - ics from the definition of a Material Adverse Effect (MAE). As occurrence of MAE is generally agreed to give rise to a termination right, such exclusion would mean higher deal certainty even if negative impacts on the target company were to occur due to COVID-19 and similar infectious diseases or pandemics. 6.8 Additional Governance Rights The bidder may execute a shareholders’ agreement with the other shareholders for additional governance rights such as the right to appoint directors or the
statutory auditor with respect to the target where it does not seek to obtain full ownership of the target. Furthermore, the articles of incorporation of a target may be amended to provide for additional governance rights to the bidder. For example, certain matters may be set forth in the articles of incorporation to require a special resolution at the shareholders’ meeting and/or board meeting, which can secure veto rights for certain corporate actions by requiring an increased number of affirma - tive votes from the shareholders and directors. In any event, such execution of the shareholders’ agreement and amendment of the articles of incorporation must not violate the KCC’s mandatory rules regarding cor - porate governance. 6.9 Voting by Proxy Shareholders may vote by proxy by having a third party submit a proxy at the shareholders’ meeting. In the case of listed companies, in order to make a solicitation of voting by proxy, one must follow the procedures set forth in the FISCMA. For example, a solicitor must provide a proxy form and reference doc - uments to the one being solicited in a certain way and submit the documents to the FSC and KRX no later than two business days prior to the date of delivery, and the documents should be kept in a certain place where they are accessible to the general public. 6.10 Squeeze-Out Mechanisms Squeeze-out of minority shareholders at fair value is possible in Korea. However, a squeeze-out is only per - missible if the major shareholder owns at least 95% of the outstanding shares (the number of shares held by subsidiaries is aggregated) and complies with certain procedures. Whilst the squeeze-out mechanism was used for some time at the early stage of its introduc - tion in 2012, it has not been frequently used thereafter. As a method of purchasing the remaining shares that are not tendered in the tender offer, many companies take alternative approaches such as a comprehen - sive share exchange, a capital reduction or a stock consolidation. In the case of a comprehensive share exchange, when a special resolution of the sharehold - ers is passed for each of the parent company and
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