Fair Trade Commission "SK Gives Up Bidding to Acquire Stake in Siltron Owned by Chairman"... First Sanction for Providing Business Opportunity

First Case of Sanction for 'Providing Business Opportunity' by Group Head
Bid Opportunity for Likely Winning Bidder is a Business Opportunity

Fair Trade Commission: "SK provided business opportunity to Chairman Choi without board approval"
Unfair profit attributed to Chairman Choi who used the business opportunity provided by SK
Value of Chairman Choi's 29.4% stake in Siltron increased by KRW 196.7 billion compared to 2017
Corrective order and total fine of KRW 1.6 billion imposed
SK: "Regrettable sanction decision difficult to accept... will consider necessary measures"

Choi Tae-won, Chairman of SK Group, is attending the plenary meeting held at the Sejong Tribunal on the 15th.

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission (FTC) has judged that Choi Tae-won, chairman and the same person as the head of SK Group, unfairly received a business opportunity from SK, which he controls, namely the opportunity to acquire the remaining shares of Siltron, and gained considerable profits, deciding to impose sanctions. This is the first case of sanctioning a controlling shareholder for using a group company's business opportunity by leveraging absolute control and internal information.

On the 22nd, the FTC announced that it decided to impose a corrective order and a total fine of KRW 1.6 billion on SK Inc. for providing a business opportunity to a related party, Chairman Choi.

The FTC judged that after SK Inc. acquired 70.6% of Siltron's shares, despite the expectation of considerable profit if it acquired the remaining 29.4%, SK Inc.'s CEO and the same person as the SK group head, Chairman Choi, was allowed to acquire the shares by SK Inc. unreasonably giving up its acquisition opportunity and directly or indirectly supporting Chairman Choi's acquisition of the remaining shares, thereby providing his own business opportunity.

The FTC viewed that this provision of business opportunity by SK resulted in unfair profits accruing to Chairman Choi. The value of Siltron shares acquired by Chairman Choi increased by approximately KRW 196.7 billion as of the end of 2020 compared to 2017.

Yook Sung-kwon, Director of the FTC's Corporate Group Division, said, "In the process of providing the business opportunity, Chairman Choi, as the highest decision-maker of the SK group, was involved in SK Inc. giving up the business opportunity and instead acquiring it himself, causing SK Inc. to act to realize his acquisition of the business opportunity. The rightful owner of the business opportunity, SK Inc., was effectively excluded from this decision-making process. Considering the considerable scale of profits accruing to Chairman Choi, the unfairness of the profits is recognized."

Overview of SK Inc. and Chairman Chey Tae-won's Acquisition Transactions of Siltron Shares

◆SK Decided to Forfeit Bid After Chairman Choi Expressed Acquisition Intent= One of the key issues in this case is 'When did SK decide not to participate in the bid for the remaining 29.4% of Siltron shares?' The FTC's investigative office (equivalent to prosecution) judged that SK decided to forfeit the bid after Chairman Choi instructed his secretariat on April 14, 2017, to review his participation in the bid. On the other hand, SK Inc. claimed that while holding 51% of shares, it was reviewing acquisition of some remaining shares and had already decided on April 6 not to purchase the remaining 29.4% shares when it decided to acquire 19.6% shares held by KTB. The FTC sided with the investigative office's judgment.

According to the FTC, Chairman Choi first instructed his secretariat on April 14, 2017, after hearing the sale bid information at a monthly meeting attended by SK Inc. directors to review his participation in the bid, and the legal office reviewed and reported on it. Subsequently, on April 17 or 18, before participating in the bid, Chairman Choi confirmed SK Inc.'s intention to participate in the bid with Jang Dong-hyun, CEO of SK Inc. At that time, CEO Jang replied immediately that "SK Inc. has no intention to acquire" when Chairman Choi asked about acquisition intent, although SK Inc. had not yet reviewed whether to acquire the remaining 29.4% shares.

Later, on May 29, Chairman Choi again requested SK Inc. by official letter to confirm whether it intended to purchase the remaining shares. SK Inc. reported the 'non-acquisition policy' to the 'Governance Committee' composed of outside directors and replied to Chairman Choi on May 31. Chairman Choi participated in the bid for the 29.4% Siltron shares sale by Woori Bank on April 21 and was selected as the sole qualified investor, acquiring the shares on August 24 of the same year through a TRS (Total Return Swap) method.

◆Opportunity to Acquire Remaining Siltron Shares is SK Inc.'s Business Opportunity= The FTC judged the business opportunity in this case as "the opportunity to acquire 29.4% of Siltron shares." There is no provision in the Fair Trade Act limiting the scope of business opportunities to those related to acquisition of management rights, and many academic papers consider acquisition of minority shares by controlling shareholders as a business opportunity under the Commercial Act.

The FTC viewed this business opportunity as SK's business opportunity. Director Yook explained, "SK Inc., as a holding company, controls business content through 'share acquisition' and mainly earns dividends through share ownership. Since SK Inc. had already acquired 70.6% of Siltron shares, the opportunity to acquire the remaining 29.4% is highly related to its ongoing business, and SK Inc. itself had reviewed and decided to acquire the remaining shares later."

The FTC considered that the remaining Siltron shares could bring considerable profit to SK Inc. When SK Inc. reviewed acquiring Siltron's management rights in December 2016, it projected that Siltron's corporate value would grow from KRW 1.1 trillion to KRW 3.3 trillion by 2020 through value enhancement, so additional profits proportional to the 29.4% stake could be expected upon acquisition. Also, owning 100% shares would enable stable management without interference from strategic investors (SI) or third parties and allow business operation without risk of leakage of core semiconductor technology.

◆SK Provided Business Opportunity to Chairman Choi by 'Unreasonably Forfeiting Bid' The FTC judged that although SK Inc. could gain considerable profit by acquiring the 29.4% Siltron shares itself, it not only tacitly allowed Chairman Choi's acquisition but also forfeited the bid without a reasonable process, thereby providing the business opportunity to Chairman Choi.

Furthermore, the FTC viewed that SK Inc. directly and indirectly supported Chairman Choi's successful acquisition of the remaining shares. Although it was a personal transaction of Chairman Choi, SK Inc. had its secretariat and finance and legal officers support the entire process from bid participation to final stock purchase agreement. SK Inc. consistently refused due diligence requests from potential acquirers of the remaining shares and shareholder agreements for resale, which helped Chairman Choi gain a favorable position in the bid.

The FTC judged that SK Inc. was in a conflict of interest situation where its CEO and controlling shareholder intended to acquire the company's business opportunity, but SK Inc. did not comply with the decision-making procedures under the Commercial Act. The Commercial Act requires holding a board meeting, the most neutral body, for conflicts of interest between the company and directors, so that directors can decide on the use of business opportunities and provision to directors from the company's best interest perspective based on sufficient information. However, SK Inc. did not go through such approval. Although Chairman Choi reported twice to the Governance Committee composed of outside directors after participating in the bid, it was a post-facto report without legal responsibility, and the outside directors expressed 'sufficient understanding' rather than consent, so it is difficult to consider it equivalent to 'board approval.'

At the full meeting held on the 15th, Chairman Choi, appearing as the respondent, stated, "I never intended to illegally make money by seizing SK Inc.'s business opportunity then or now," and "I acquired the remaining Siltron shares believing it would benefit the group, so I am embarrassed that this action is evaluated as usurping the company's profits." However, the FTC ultimately judged that Chairman Choi unfairly used SK's business opportunity to attribute economic benefits to himself. Director Yook explained, "The profits should have accrued to SK Inc., the rightful owner of the business opportunity, but Chairman Choi used it without the company's consent (board approval) or paying fair compensation, attributing it to himself. Considering that SK Inc. was effectively excluded from the process and the considerable scale of profits accruing to Chairman Choi, the unfairness of the profits is recognized."

Based on these grounds, the FTC imposed a total fine of KRW 1.6 billion, KRW 800 million each on SK as the provider of the business opportunity and Chairman Choi as the recipient, along with a prohibition order. This is pursuant to the regulation that if sales related to the violation cannot be calculated, a fixed fine of up to KRW 2 billion may be imposed. However, the FTC plans to review measures to calculate related sales when the business opportunity provided is a stock acquisition opportunity or when it is difficult to calculate related sales of the recipient, including cases where related parties receive business opportunities, considering the unfairness of fines not reflecting the violation amount in such cases.

Meanwhile, regarding the FTC's sanction decision, SK said, "We regret the sanction decision, which is difficult to accept despite our faithful explanation regarding the SK Siltron case," and "We will carefully review the details upon receiving the resolution and consider necessary measures."

This content was produced with the assistance of AI translation services.