Controlling Shareholders Exit First? The Trap in the Mandatory Tender Offer's "50%+1 Share" [fn Market Watch]

[Financial News]  The mandatory tender offer system, set to return after nearly 30 years, has entered a final round of wrangling. The focus of the debate also appears to be shifting from the purchase size of 50%+1 share to equal selling opportunities for controlling and ordinary shareholders.
According to the investment banking industry on the 29th, 18 domestic and overseas asset managers—including Life Asset Management, VIP, Shinyoung Asset Management, Align Partners, Cha Partners, TIMEFOLIO Asset Management, and Oasis Management—issued a joint statement that day urging the National Assembly of the Republic of Korea to postpone the plenary vote on the proposed introduction of the mandatory tender offer system, scheduled for October 1. The participating managers have combined assets under management of approximately 87 trillion won.
What these asset managers took issue with was not the "50%+1 share" itself, but the prior purchase of the controlling shareholder's stake through an off-market transaction.
The National Policy Committee's proposal would allow an acquirer to first acquire the controlling shareholder's stake and then launch a tender offer only for the number of shares needed to reach 50%+1 share of the issued shares, including the stake already acquired. Pro rata allocation would apply if subscriptions exceeded the target, but the controlling shareholder, having already sold the stake, would be excluded.
For example, if the controlling shareholder held a 40% stake, the acquirer could buy it first and then purchase only an additional 10%+1 share from the remaining 60% held by ordinary shareholders. Even if all ordinary shareholders tendered their shares, they could sell only about one-sixth of their holdings. The controlling shareholder would account for approximately 80% of the shares acquired.
This is why asset managers emphasize "the same percentage" rather than "the same price."
They proposed a "pro rata tender offer" as an alternative. Under this approach, the controlling shareholder would participate in the tender offer alongside ordinary shareholders, and the same pro rata allocation would apply to all shareholders if subscriptions exceeded the target amount. In the example above, both the controlling shareholder and ordinary shareholders could sell about half of their holdings at the same price. The acquirer would still secure a total stake of 50%+1 share, meaning acquisition funding would not increase.
The asset management industry supports the introduction of the mandatory tender offer system itself. However, managers pointed out that if the controlling shareholder receives a control premium and sells the entire stake first, with the tender offer covering only the shares remaining for ordinary shareholders, the system would ensure equal pricing but not equal opportunities to sell.
There are also concerns that the law could actually provide less shareholder protection than existing market practices. In some change-of-control transactions involving OSSTEM IMPLANT, Lutronic, and Jeisys Medical, ordinary shareholders were offered an opportunity to exit through a tender offer even though there was no legal obligation to do so. By contrast, if prior purchases and the 50%+1 share threshold become the legal standard, future acquirers may structure transactions around this minimum. The paradox is that a law created to protect shareholders could establish a statutory floor below the market's voluntary shareholder-protection practices.
An asset management industry source said, "If we approach it as a 50% or 100% ratio, it ultimately becomes a debate over the acquirer's funding burden," and added, "Even if 50%+1 share is retained, applying the same pro rata allocation to all shareholders can reduce disparities among them without increasing the total acquisition cost."
Meanwhile, the participating asset managers called for the plenary vote to be postponed and the system to be reconsidered, saying, "The same price alone is not enough. The opportunity to sell the same percentage must also be guaranteed."

[email protected] Kim Kyung-ah Reporter