Korea Trapped in the Perception of 'M&A = Restructuring'... Regulatory Improvements Also at a Standstill

Significantly Lower Domestic M&A Compared to Major Countries... 'Mergers and Acquisitions as a Growth Platform' Perception Declines
Many Obstacles to M&A Including Shareholding Regulations on Holding Companies Not Seen Overseas, Weak Ecosystem Development

[Asia Economy Reporter Lee Hye-young] The reason why Korean companies lag significantly behind major foreign companies in mergers and acquisitions (M&A) is largely due to the perception of M&A as ‘restructuring’ rather than industrial growth, which has led to various regulatory obstacles. While major overseas companies actively expand their scale and secure competitiveness through vigorous M&A activities, domestic companies are unable to keep up with the changing times, hindered not only by lack of government support but also by regulations. Additionally, the recent increase in entry barriers by major global powers such as the United States, China, and the European Union (EU), who have been blocking global companies’ M&A activities, is also cited as a disadvantageous factor. Korean companies are increasingly troubled by the dual burdens of rising anti-business regulations and global acquisition barriers.

◇‘M&A as restructuring’... Korea held back by the past= Experts point out that Korea’s record of 1,063 M&A deals over the past decade?less than half the average of the five major countries (the United States, Japan, France, Germany, and the United Kingdom) at 2,598 deals?is largely due to domestic M&A regulations and related systems not being supportive. While foreign companies have grown by actively conducting M&A within their own countries and then aggressively entering the global large-scale M&A market to secure growth momentum, Korea lacks such a foundation.

According to the Korea Securities Depository on the 10th, the number of corporate M&A deals among domestic listed companies last year was only 141. Although this was an increase from 121 deals the previous year, the figure has hovered around 120 to 140 deals over the past five years. Most of these were transactions between affiliates. According to the Financial Supervisory Service, affiliate transactions accounted for about 50% of domestic M&A over the past five years. For M&A to lead to corporate growth in the Fourth Industrial Revolution era, cross-industry M&A should be more active, but this is not the case in Korea.

To revitalize the M&A ecosystem, not only capital but also openness to market participants must be enhanced, but Korea is failing to keep pace with global trends in this regard as well. Domestic companies have consistently requested institutional improvements from the government, but only at the end of 2020, after much public opinion consideration, was the Fair Trade Act amended to allow corporate venture capital (CVC) for general holding companies.

The additional costs incurred due to the holding company’s affiliate incorporation regulations, such as share acquisition, are also cited as factors hindering M&A activation. A representative case is SK’s abandonment of the acquisition of Medison. In 2010, SK enthusiastically pursued the acquisition of the medical equipment company Medison but gave up. Under the Fair Trade Act, unlisted subsidiaries require ownership of more than 40% of shares, but at that time, shareholder conflicts and other issues made securing shares a wall to overcome.

Even 12 years later, the M&A environment remains challenging. Korean Air, which is pursuing the M&A of Asiana Airlines, is facing a crisis where its vision for a new leap through corporate integration is threatened by the Korea Fair Trade Commission’s condition to relinquish major routes, which could lead to a decline in competitiveness.

Yoo Jung-joo, head of the corporate system team at the Federation of Korean Industries, said, "Unlike overseas, where there are no regulations on holding company’s (subsidiary) shareholding ratios, Korea applies strong regulations. It is urgent to recognize M&A not as restructuring but as co-growth between companies, including large corporations and SMEs or startups, and to complement and revise the system accordingly."

◇US and EU lock the door on semiconductors and advanced industries= While Korea shows slow M&A movements domestically and internationally, the United States and the EU have been actively defending M&A in semiconductors and advanced industries, intensifying the hegemonic competition.

The US Nvidia’s acquisition of the UK-based ARM, dubbed the ‘deal of the century,’ ultimately returned to square one after a year and a half since its announcement. This was due to antitrust regulatory hurdles from major authorities in the US, UK, and EU. Taiwan’s GlobalWafers’ plan to acquire Germany’s Siltronic was also scrapped last month after the German government finally rejected approval.

Major countries equate the development of advanced industries, including semiconductors, with national security and block acquisitions of domestic companies by foreign firms. Moreover, the US and Europe have each introduced legislation to invest astronomical funds in the semiconductor sector, igniting competition to foster their own advanced industries.

Domestic major companies, including Samsung Electronics, which had announced ‘meaningful’ M&A plans this year, are closely monitoring these moves by foreign governments. Samsung Electronics was expected to pursue M&A in system semiconductors or automotive electronics businesses, leveraging about 120 trillion won in cash reserves, but the tightening of antitrust regulations and technology security concerns worldwide have deepened their concerns.

Professor Park Jae-geun of Hanyang University’s Department of Convergence Electronics Engineering said, "Regulations on foreign companies’ acquisitions of domestic firms will continue for a considerable period. It is realistically difficult for domestic companies, including Samsung Electronics, to conduct mega M&A, so they need to broaden their perspective to include acquisitions of small and medium-sized or innovative startups."

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