Opposition Warns: Mandatory Treasury Share Cancellation Only Benefits Foreign Firms...Triggers 'Korea Discount'

Allow Dual-Class Shares, Poison Pills, and Other Management Defense Mechanisms

As the Democratic Party of Korea pushes for the third amendment to the Commercial Act, which would mandate the cancellation of treasury shares, concerns have been raised that this could encourage foreign corporate takeovers. The reasoning is that domestic companies would no longer be able to use treasury shares as a defense mechanism against hostile takeovers, making it easier for foreign firms to acquire local businesses.

On November 27, the "Alternatives and Responsibility" group, a gathering of re-elected lawmakers from the People Power Party, held a "Third Commercial Act Amendment Forum" at the National Assembly to discuss the issues and possible alternatives. Experts pointed out that if the cancellation of treasury shares becomes mandatory, companies will lose key tools for defending management rights, boosting share prices, and utilizing capital. They explained that, unlike major advanced economies, if only Korea enforces mandatory cancellation of treasury shares, it could become a cause of the so-called "Korea Discount."

Yonhap News Agency

Kwon Jaeyeol, a professor at Kyung Hee University Law School, predicted, "Companies will be left defenseless against hostile mergers and acquisitions (M&A), so they will have to take costly measures to protect their business." Attorney Jo Ijae from TIRTIR Co., Ltd. also commented, "If management instability continues, companies will focus on short-term results rather than investing in the future."

Accordingly, opinions have been raised that, instead of mandatory cancellation, measures should be added to prevent shareholder losses when disposing of treasury shares, or that treasury shares acquired for specific purposes should be excluded from mandatory cancellation. Fundamentally, some argued that defensive measures for management rights should be allowed. Min Sejin, a professor of economics at Dongguk University, suggested: ▲dual-class shares granting more voting rights to founders and management; ▲poison pills (stock purchase rights) that allow existing shareholders to buy new shares at a price lower than the current market value; and ▲the issuance of golden shares that grant veto rights on matters decided at general meetings of shareholders.

Kim Doeup, Policy Committee Chair of the People Power Party, criticized, "The Lee Jaemyung administration is rushing to implement mandatory cancellation of treasury shares despite strong concerns from businesses, and is taking the stance that any problems can be fixed later. This approach is not desirable when dealing with the national economy."

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