Full-Scale Debate on Mandatory Tender Offer System Shakes Up M&A Market

Ruling Party Pushes for Consecutive 100% Mandatory Tender Offer Bills
Momentum Builds for President Lee Jaemyung's Key Campaign Pledge

The mergers and acquisitions (M&A) market is on high alert. As the introduction of a mandatory tender offer system-a key presidential campaign pledge of President Lee Jaemyung-appears imminent, the ruling party is actively pushing for a robust version of the system that would require a "100% tender offer for remaining shares."

According to industry sources on September 1, Kim Hyunjung, a member of the Democratic Party of Korea, has sponsored a partial amendment to the Financial Investment Services and Capital Markets Act. The bill aims to substantially protect the rights of minority shareholders in stock transfer-based corporate M&A transactions.

The core of the amendment is the introduction of a mandatory tender offer. The bill stipulates that when acquiring more than 25% of shares and gaining management control, the acquirer must make a public offer for all remaining shares. The mandatory tender offer price must be set at or above a price calculated based on the prior purchase price and the company's net asset value. In addition, until the tender offer is completed, voting rights for the previously acquired shares will be restricted to prevent abuse of control by major shareholders.

This is similar to the amendment to the Capital Markets Act that Kang Hoonshik, then a Democratic Party lawmaker and now the Presidential Chief of Staff, sponsored last year. That amendment also mandates a 100% tender offer for remaining shares when more than 25% is acquired, and it is currently under discussion by the National Assembly's Political Affairs Committee.

The 100% mandatory tender offer bills consecutively introduced by the ruling party are much stronger than the system the Financial Services Commission sought to introduce in 2022. Three years ago, the proposed system required those acquiring more than 25% of a listed company's shares and seeking management control to make a public tender offer for "50% plus one share" or more.

Industry stakeholders have expressed concerns. Regarding the amendment sponsored by Chief of Staff Kang last year, organizations such as the Financial Services Commission, the Korea Listed Companies Association, and the Kosdaq Association have all raised concerns about the potential contraction of the M&A market.

Concerns are particularly high among domestic private equity funds (PEFs), which play a major role in the M&A market. An executive at a PEF explained, "If a mandatory tender offer is introduced, acquisition costs for buyers will inevitably increase exponentially," adding, "This could also lead to a flood of global PEFs with abundant capital entering the market."

Companies currently in the process of being sold may also find themselves in a difficult position. Ak Holdings, Hyundai Hims, MNC Solution, HPSP, and Classys are prime examples. If the mandatory tender offer system gains momentum, M&A calculations will inevitably change.

A head of a mid-sized PEF commented, "Companies undergoing restructuring through M&A could also face challenges," and added, "The M&A market has already contracted significantly, and the introduction of a mandatory tender offer system could undermine corporate sustainability."

The ruling party, which is promoting the introduction of the mandatory tender offer system, believes it will substantially protect the rights of minority shareholders. Assemblywoman Kim stated, "The Korean capital market has long been unfairly structured in favor of major shareholders, resulting in minority shareholders often bearing unilateral losses," and explained, "The mandatory tender offer system is a mechanism to realize the principle of shareholder equality and will serve as an institutional foundation for restoring trust in the market."

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