KICPA: "Disclosure of Merger Price Valuation Needs More Specificity"

Strengthening Disclosure and Valuation Practices
Calls for More Specific Disclosure Content and a Registration System for Valuation Agencies
Emphasis on Board Responsibility and Fairness in Merger Price Determination

At the end of last year, the Enforcement Decree of the Financial Investment Services and Capital Markets Act was amended, strengthening the autonomy in determining merger prices for mergers between non-affiliated companies and enhancing disclosure requirements for board decisions regarding mergers. There have been proposals to further specify the content of disclosures and to introduce a registration system for valuation agencies.

On January 23, the Korea Institute of Certified Public Accountants announced that it held the "6th Valuation Forum" on January 21. During the forum, research findings on the merger price determination systems and external evaluation systems of major foreign countries were shared, along with related opinions from stakeholders.

Choi Yoonyeol, President of the Korea Institute of Certified Public Accountants, stated, "With the amendment of the Enforcement Decree of the Financial Investment Services and Capital Markets Act in November last year, the autonomy in determining merger prices for mergers between non-affiliated companies has been strengthened, highlighting the importance of both the valuation of merger prices and external evaluations." He added, "This forum will serve as an opportunity to understand the revised system through examples from major foreign countries and to strengthen our practical response capabilities."

Hwang Hyunyoung, a research fellow at the Korea Capital Market Institute, presented a study titled "Research on Domestic and International Merger Price Determination Systems and External Evaluation Systems." The key points of last year's amended enforcement decree include: ▲ granting autonomy in determining merger prices between non-affiliated companies, ▲ strengthening disclosure requirements by boards of directors regarding merger decisions, and ▲ improving the external evaluation system. Hwang explained, "In major foreign countries such as the United States, the United Kingdom, Japan, and Germany, the determination of merger prices is generally left to the discretion of the companies involved." He added, "External evaluations are not mandatory in most countries. Even in countries like the United Kingdom and Germany, where external expert evaluations are required for merger transactions, the law specifically limits the content of such reports by stipulating detailed requirements."

Provided by Korea Institute of Certified Public Accountants

He further suggested, "Considering the legislative examples of major foreign countries, it is necessary to make the content of disclosures more specific," and added, "In particular, for mergers between affiliated companies, disclosures regarding conflicts of interest appear to be necessary." He also emphasized, "The primary responsibility for determining the appropriateness and fairness of the merger price should clearly lie with the board of directors of the company involved, while external evaluations should serve only to confirm whether the outcome and the valuation method are fair."

A comprehensive discussion was then held, chaired by Kim Jongil, a professor at Catholic University. Jung Namcheol, a professor at Hongik University, remarked, "It is somewhat unreasonable to uniformly regulate merger prices by law," and suggested, "A registration system for valuation agencies is needed to effectively establish the revised system, and a dedicated department should be created to enhance the expertise of supervisory authorities."

Son Hoseung, a partner at Samjong KPMG, stated, "Under the revised system, the responsibilities of external valuation agencies and the regulations of supervisory authorities may be strengthened," and emphasized, "It is necessary to clarify the responsibilities of related parties through enhanced board disclosure obligations, and to establish practical practices to support this."

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