SOUTH KOREA Trends and Developments Contributed by: Ho Joon Moon, Tae Jung Kim, Do Kyeom Kim and Ji Geon Park, Lee & Ko
Legislative Developments to Revitalise Capital Market and Enhance Regulatory Oversight In Korea, amid a surge in retail investor partici - pation in the stock market, addressing the so- called “Korea Discount” where the stock prices of Korean listed companies are undervalued compared to those in other countries with similar net asset values and profitability – has emerged as a major policy challenge. While low share - holder returns, structural issues in domestic industries, and stringent foreign exchange regu - lations are all considered as factors contributing to the Korea Discount, from a legal perspective, the lack of effective legal mechanisms to restrict controlling shareholders’ pursuit of their own pri - vate interests over interests of all shareholders has been identified as a key reason why corpo - rate profits are not fairly distributed to minority shareholders in Korea. To resolve the Korea Discount issue and bet - ter protect minority shareholders, the Korean government undertook various reforms to the capital market regulations in 2024 by amending the Enforcement Decree and other subordinate regulations of the Financial Investment Services and Capital Markets Act (FSCMA) applicable to listed companies. In addition, more fundamen - tal legislative changes, such as amendments to the Korean Commercial Code (KCC), are being discussed to address the inherent conflicts of interest between controlling and minority share - holders. Amendments to Enforcement Decree of FSCMA in 2024 Granting Autonomy in Calculation of Merger Prices for Listed Companies Under the pre-amendment Enforcement Decree of the FSCMA, merger ratios for listed compa - nies were determined based on a legally pre -
scribed formula which took into account stock prices as of the date of the board resolution approving a merger, and only limited adjust - ments within a fixed range were allowed. There have been ongoing concerns that the forego - ing approach could hinder structural improve - ments based on determination of a merger ratio as agreed between private parties, and that it could be exploited by controlling shareholders to conduct mergers at a specific time (ie, when the stock price of a company with a higher owner - ship percentage is favourable for the controlling shareholder), thereby resulting in mergers that benefit those controlling shareholders. Effective from 26 November 2024, the amended Enforcement Decree of the FSCMA abolished the statutory formula for calculating merger pric - es in principle, thereby enabling parties to deter - mine merger terms through negotiation. How - ever, for mergers between affiliates or involving special purpose acquisition companies (SPACs), the previous rule still applies. In such cases, the base price is calculated as the weighted aver - age of: (i) the one-month average closing price; (ii) the one-week average closing price; and (iii) the most recent closing price, with a permitted adjustment range of 10% for affiliate mergers and 30% for SPAC mergers. Enhancing Disclosure and Independent Evaluation Requirements for Mergers The amended Enforcement Decree of the FSC - MA aims to enhance procedural fairness and transparency in mergers by moving away from the regulation of valuation of merging companies through statutory formula and introducing robust disclosure and independent evaluation require - ments for valuation. • Previously, minority shareholders lacked access to board-level discussions on merg -
784 CHAMBERS.COM
Powered by FlippingBook