ICGN Urges South Korea to Revise Mandatory Tender Offer Bill
A global investor organization whose member institutions oversee more than $100 trillion in assets has called for a comprehensive review of the mandatory tender offer system being advanced in South Korea’s National Assembly. The move reflects concerns that the current bill, which gives controlling s
The International Corporate Governance Network (ICGN) has urged South Korea to revise a mandatory tender offer bill currently under consideration in the National Assembly. The organization, which has institutional investor members in over 40 countries and oversees more than $100 trillion in assets, expressed concerns that the bill's proposal of a "50% plus one share" threshold may not adequately protect minority shareholders' rights.
The ICGN highlighted that the proposed system could result in unequal treatment of shareholders when the controlling shareholder already holds a significant stake. They argued that allowing an acquirer to first purchase the controlling shareholder's entire stake conflicts with the principle of equal treatment for all investors. In addition, the approach could significantly increase acquisition costs and dampen the M&A market.
The amendment to the Financial Investment Services and Capital Markets Act, which passed the National Assembly's Political Affairs Committee, requires an acquirer to purchase the controlling shareholder's stake before tendering additional shares from minority shareholders. This approach was intended to reduce the financial burden on acquirers but has been criticized for its potential drawbacks.
ICGN recommended that acquirers should be required to make a tender offer for all remaining shares when control of a company changes hands, aligning with practices in major markets such as the European Union and the United Kingdom. They also proposed applying pro rata allocation rules to both controlling and minority shareholders, preventing the controlling shareholder from receiving priority in the tender offer.
ICGN stressed the need for transparent disclosure of offer terms, price determination, details of any pre-tender share purchases, and allocation criteria. They also called for safeguards against transactions that could circumvent mandatory tender offer rules. The legislative process has been contentious, with amendments originally proposing mandatory purchases of all remaining shares, but these were later amended to the current 50%-plus-one-share approach.
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