'50%+1 Share' Mandatory Tender Offer System Clears National Assembly Political Affairs Committee

[Financial News] The mandatory tender offer system, which would allow ordinary shareholders to sell their shares at prices reflecting the control premium during mergers and acquisitions (M&A), has cleared the National Assembly Political Affairs Committee. The system requires an acquirer of control to make a mandatory tender offer for a certain stake from ordinary shareholders.
The National Assembly Political Affairs Committee held a plenary meeting on the 17th and passed an amendment to the Capital Markets Act containing these provisions. Earlier, the policy committees of the Democratic Party of Korea and the People Power Party agreed on a plan to introduce the mandatory tender offer system at a joint livelihood policy meeting on the 15th, after having previously differed over the issue.
The amendment makes a tender offer mandatory when an acquirer secures a stake of at least 25% through an M&A deal and becomes the largest shareholder, or when an existing largest shareholder with a stake of at least 25% acquires additional shares. The size of the tender offer is set so that the acquirer's stake after the acquisition reaches '50%+1 share.'
For example, if an acquirer purchases a 30% stake from the existing largest shareholder, it must make an additional tender offer for approximately 20% to ordinary shareholders. Previously, even when a controlling shareholder sold a stake at a price incorporating a control premium, ordinary shareholders were not guaranteed the opportunity to sell their shares on the same terms.
However, disagreements emerged within the Political Affairs Committee over the scope of the tender offer and its impact on the M&A market. In the vote that day, Cho Jung-hun of the People Power Party, Park Hong-bae of the Democratic Party of Korea, and Han Chang-min of the Social Democratic Party abstained.
Cho Jung-hun said, "If this system passes, defending management control will require significantly more capital than it does now." He added, "Compared with relatively small domestic private equity funds, this could have the unintended effect of allowing only enormous global capital to enter Korea's M&A market." Han Chang-min, by contrast, said, "It would be desirable to require the acquisition of all remaining shares through the tender offer." He continued, "If it is set at 50%+1 share, the existing controlling shareholder will still enjoy the control premium, but it will be difficult for all ordinary shareholders to share in it as well."
The amendment will undergo review by the Legislation and Judiciary Committee before being submitted to a plenary session of the National Assembly.

[email protected] Song Ji-won Reporter