SOUTH KOREA Law and Practice Contributed by: Ki Wook Kang, Kyung Chun Kim, Junghae Kang and Do Kyeom Kim, Lee & Ko
the subsidiary, the parent company receives all of the subsidiary’s stocks from the shareholders of the sub - sidiary and the parent company’s shares are granted to the shareholders of the subsidiary in exchange. Here, it is allowable to give cash in lieu of the parent company’s shares, in which case, the minority share - holders of the subsidiary will be naturally cashed out. Capital reduction or stock consolidation is a method of cash-out by making shares of minority shareholders fractional shares by setting the merger or the capital reduction ratio high. 6.11 Irrevocable Commitments In Korea, the target company is generally not involved in the tender offer process and, therefore, it is not common to obtain irrevocable commitments to ten - der or vote by controlling shareholders of the target company. However, it should be noted that there have been some cases in which irrevocable com - mitments to tender by controlling shareholders have been obtained through privately negotiated definitive agreements. Prior to launching a tender offer, the bidder makes vari - ous preparations for the tender offer, such as selecting the tender offer agent, drafting the tender offer state - ment, prior consultation with the FSS, reserving space in newspapers, depositing the tender offer funds and procuring a certificate of deposit from the bank. Once such preparations have been completed, the bidder launches a tender offer whereby public notice of the tender offer is made. Public notice must be made in two or more newspapers and the bidder must also file a tender offer statement and prospectus with the FSC and the KRX, and send a copy of the tender offer statement to the issuer of the target shares. 7.2 Type of Disclosure Required 7. Disclosure 7.1 Making a Bid Public In principle, if a target company issues new shares and solicits offers from 50 or more persons (excluding pro - fessional investors and certain other excluded parties) to acquire new shares and the total value of shares issued is KRW1 billion or more, the target company must file a registration statement and prospectus with
the FSC. The registration statement and prospectus must also be publicly disclosed. Additionally, if a listed company issues new shares, it must submit board resolutions approving the issuance to the FSC and the KRX. Furthermore, if a company issues new shares to a specific investor without complying with the pre-emp - tive rights of the existing shareholders, the company is required to publish a public notice or give individual notices to the existing shareholders in advance. In the context of the issuance of new shares in a busi - ness combination such as a merger, rather than a new share issuance for general capital increase, if the target/ issuing company is a listed company, several types of disclosures must be made in stages over the course of several months. First, the target company must dis - close the board resolution for the business combination or the execution of the contract, whichever comes first. Further, the acquirer, who acquires more than 5% of the shares of the target company through the relevant busi - ness combination, has to file a 5% Disclosure Report at the time of contract execution. If a business combination results in the issuance of new shares of a listed company (unless it is issued to a limited number of persons and all of them deposit the shares in the Korean Securities Depository for a one- year period), the target company must disclose the registration statement and prospectus. Such a reg - istration statement will be accepted by the FSC and will take effect after a certain period. After the effec - tive date, the shareholders’ meeting will be held to approve the business combinations, such as a merger. All convenings and results of the general meeting of shareholders must be disclosed, and after the issu - ance is made, the result of the business combination and the issuance of share results must be disclosed, and a 5% Disclosure Report and a 10% Disclosure Report (if 10% or more is acquired) must be made. 7.3 Producing Financial Statements The financial statements of the corporate bidder must be included in the tender offer statement. The finan - cial information of the target company for the quar - ter immediately preceding the tender offer, as well as those of the past three years, must also be included.
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