Resolving Information Asymmetry for General Shareholders in M&A... Mandatory Disclosure of Merger Background and More

Financial Services Commission Holds 'M&A System Improvement Meeting'

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where financial authorities decided to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to launch in May by the end of the year. Financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

From now on, when conducting corporate mergers and acquisitions (M&A), important decision-making details and board of directors' judgments must be mandatorily disclosed. Additionally, institutions calculating the merger price can no longer be selected as external evaluation agencies.

On the 6th, the Financial Services Commission held an 'M&A System Improvement Meeting' chaired by Vice Chairman Kim So-young and announced the 'Plan to Enhance the Global Consistency of M&A Systems for Investor Protection.' This plan was prepared based on the 'Corporate M&A Support Plan' announced in May last year, after gathering opinions and other processes.

According to the improvement plan, the background for promoting the merger, reasons for selecting the merger counterpart, and reasons for deciding the timing of the merger must also be disclosed. This is to resolve information asymmetry so that ordinary shareholders can sufficiently understand the progress of the merger.

Furthermore, the board of directors' opinion statement on the purpose of the merger, the appropriateness of the merger price and transaction conditions, and reasons for opposing the merger must be separately prepared and mandatorily disclosed. Currently, since the content of board discussions is not disclosed, it is difficult for ordinary shareholders to raise issues even if decisions biased toward controlling shareholders are made. It is expected that the board's accountability will be strengthened during the merger process.

The external evaluation system will also be improved. Specifically, institutions calculating the merger price cannot be selected as external evaluation agencies. This means eliminating the risk of self-assessment, where external evaluation agencies evaluate the appropriateness of the merger price they themselves calculated. Furthermore, the plan is to encourage the board of directors to responsibly calculate the merger price.

The appropriateness of the merger price is clearly defined as the 'result of evaluating the actual value of the company.' Along with this, external evaluation agencies are required to establish quality control regulations and, after performing evaluation tasks, have evaluators and quality control reviewers review whether the standards were followed and include this in the evaluation opinion report.

Meanwhile, in the case of mergers between affiliates, where concerns about fairness are greater, the selection of external evaluation agencies must mandatorily go through the audit committee's resolution (or auditor's consent) that ensures independence from controlling shareholders. However, the fact of appointing an external evaluation agency will be disclosed after the merger decision, and disclosure formats will be revised accordingly. It is expected that providing an independent working environment for external evaluation agencies will enable fair evaluations.

Additionally, regulations on calculating the merger price will be improved. The current Capital Market Act regulations specifically govern the methods for calculating the merger price, which is seen as hindering corporate restructuring through autonomous negotiations between companies. Going forward, for mergers between non-affiliated companies, the method for calculating the merger price will not be mandated by the Capital Market Act formula, provided that disclosure of the merger is strengthened and external evaluation is mandatory. The method can be determined through mutual agreement between the parties.

However, since concerns about the fairness of the merger price may arise, external evaluation will be mandatory to have a third party verify the merger price in mergers between non-affiliated companies. Through this, it is expected to support autonomous business restructuring by companies and enhance the global consistency of the merger system.

Meanwhile, mergers between affiliates are excluded from regulatory improvements because they are difficult to view as transactions between equal parties, and if the method for calculating the merger price is liberalized, decision-making centered on major shareholders may occur, causing harm to ordinary shareholders.

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