SOUTH KOREA Trends and Developments Contributed by: Ho Joon Moon, Tae Jung Kim, Do Kyeom Kim and Ji Geon Park, Lee & Ko
ers, making it difficult to challenge decisions that favoured controlling shareholders. The amended FSCMA now mandates that the board of a listed company is required to prepare and publicly disclose a written state - ment including: i) the purpose and anticipated effects of the merger; ii) the appropriateness of the merger price; iii) the fairness of transac - tion terms such as merger ratio; and iv) any dissenting opinions from board members and reasons for such dissent, with their signa - tures. Through the newly required mandatory preparation and disclosure of the statement, minority shareholders are now able to make investment decisions based on more mean - ingful information regarding mergers. From the company’s perspective, the amended rule has increased the need to engage in more proactive explanation and justification of the rationale for the merger and the appropriate - ness of the merger ratio to minority share - holders. • Under the amended Enforcement Decree of the FSCMA, an external evaluation of the merger price is required for both merg - ers between affiliated companies and those between unaffiliated companies. In addition, the procedures and requirements for select - ing external evaluation agency have become more stringent: companies are now required to obtain the consent of statutory auditor or the approval of audit committee when select - ing an external evaluation agency; disquali - fying criteria for external evaluation agency have been strengthened; and external evalu - ation agencies are now required to comply with newly established quality management standards when performing merger-related evaluations. • The mandatory disclosure of board opin - ions and third-party valuation requirements described above apply not only to mergers
but also to material business/asset transfers, material asset transfers, and comprehensive share exchanges/transfers. Regulations on Treasury Stocks of Listed Companies Pursuant to the amended Enforcement Decree of FSCMA effective as of 31 December 2024, the following regulatory changes were made with respect to the acquisition and disposal of treasury stocks by listed companies. • While treasury stocks are generally deprived of shareholder rights such as voting right and right to receive dividends, the statutory provisions and court precedents have been unclear as to the right to receive newly issued shares during corporate mergers and spin- offs. As such, in practice, newly issued shares were frequently allocated to treasury stocks during mergers and spin-offs. In particular, during a spin-off, when new shares of the company newly established through spin- off ( “Spin-Off Company” ) are allocated to treasury stocks held by the original company ( “Original Company” ) subject to such spin- off, the controlling shareholder of the Original Company may, in addition to new shares received in proportion to its shareholding ratio in the Original Company, also indirectly gain additional control over the Spin-Off Com - pany through the shares allocated to treasury stocks. This so-called “magic of treasury stocks” effect has been criticised as a means by which controlling shareholders strengthen their control through spin-offs. Under the amended FSCMA, where a listed company intends to conduct a spin-off or a spin-off merger, the Spin-Off Company is prohib - ited from allocating new shares to treasury stocks held by the Original Company, and the Original Company is not allowed to transfer
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