SOUTH KOREA Law and Practice Contributed by: Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
funds pooled, equivalent to or more than the amount required for the tender offer. 7.6 Acquiring Less Than 100% Even if a bidder does not obtain 100% ownership of a target, if it obtains sufficient shares to affirmatively resolve shareholder resolutions, it can acquire con - trol through director appointments. Upon obtaining controlling shares from the controlling shareholder of a listed company and subsequently obtaining 95% or more shares via a tender offer, the buyer can apply for voluntary delisting. In this case, the buyer must provide another opportunity to the remaining share - holders on settlement trading following the delisting. On a related note, under Korean law, a controlling shareholder holding 95% or more shares may cash out the 5% shareholders by undergoing a certain pro - cedure, which is not highly utilised in practice, but this process can be used in obtaining 5% or less shares following the voluntary delisting. There are no particular mechanisms for a private equity-backed bidder to achieve a debt push-down into the target following a successful offer. That said, it should be noted that Korean courts have ruled that putting up the target’s assets for collateral relative to the debt of the parent (eg, acquisition financing) is considered a breach of fiduciary duty of the target’s board of directors. On a similar note, Korean courts have also found that merging the target following a successful offer with a highly leveraged parent may be considered a violation of these fiduciary obligations. 7.7 Irrevocable Commitments As discussed in sections above, obtaining the shares of a listed company via a tender offer is rare in Korea. 8. Management Incentives 8.1 Equity Incentivisation and Ownership Incentivisation of the management team is a common feature of private equity transactions, and the incen - tive can take the form of both cash and equity. Equity incentivisation by equity-linked compensation is com - monly found in private equity transactions.
In general, equity ownership is not common for the management team, and even if there is such owner - ship, the ratio is very low. However, it is common for a private equity fund to: • purchase most of the equity from the founder of an unlisted company with the founder, holding some of the remaining equity, caused to continue to manage the company; or • cause the founder/seller of an unlisted company to reinvest in the fund with a lower priority in dividend compared to those of other investors while con - For the reasons raised in 8.1 Equity Incentivisation and Ownership , it is rare for managers to hold equity. Even if there is equity ownership, it is generally not structured as sweet equity or institutional strip. Equity tends to be granted to management by the grant of stock options or cash incentives that are linked to performance and/or future exit considerations of the private equity buyer. 8.3 Vesting/Leaver Provisions For the reasons provided in 8.1 Equity Incentivisation and Ownership , there are no typical leaver or vesting provisions. In the case of stock options, there is a statutory requirement of being in service for at least two years and generally the exercise period is deter - mined to begin two to three years from the grant date until the fifth year therefrom. In the case of equity– linked compensation such as restricted stock units, it often takes the structure of vesting over the course of around five years depending on the performance of the company or the individual. 8.4 Restrictions on Manager Shareholders It is customary to agree to restrictive covenants on non-compete and non-solicit undertakings during the term of employment and for a certain period following resignation. However, there is no clear standard on the length of this period under Korean law. tinuing to manage the company. 8.2 Management Participation As the non-compete undertaking can raise an issue concerning infringement of the constitutional right to profession, the risk of invalidation of this undertak - ing can be minimised where the consideration cor -
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