[Asia Economy Reporter So-yeon Park] The Korea Corporate Governance Forum (hereinafter Forum) jointly held a seminar titled "Problems and Improvement Measures in Merger Price Calculation" with National Assembly member Lee Yong-woo on the 23rd at the Federation of Korean Industries (FKI) Hall Garnet Room in Yeouido, Seoul.
The merger ratio between listed companies is determined by the weighted average of the market price, i.e., the stock price, according to the Enforcement Decree of the Capital Market Act. However, this method was created about 30 years ago to protect investors when valuation methods were underdeveloped, but recently, there have been continuous criticisms that it harms investor interests, especially in mergers between affiliates. In particular, following the Samsung C&T and Cheil Industries merger, academia has consistently pointed out the need for improvement, but this has not led to legislative amendments. Accordingly, the Forum held the seminar to examine the problems of the current system and propose desirable improvement measures.
The presentation was delivered by Professor Chang-wan Son of Yonsei University Law School. Professor Son pointed out issues such as the unconstitutionality of the regulation mandating listed companies to set merger prices at market value and the potential infringement of shareholders' property rights due to the gap between market value and intrinsic value. As an improvement measure, Professor Son suggested excluding the current regulation for mergers between independent companies as it is unnecessary, and for mergers between affiliates, introducing the MOM system (majority of minority, a system requiring the consent of the majority of minority shareholders who have no conflict of interest), establishing an independent committee to replace the role of the board of directors, and disclosing sufficient information necessary for merger consent to strengthen procedural fairness.
During the discussion, Hong Soon-tak, an accountant from the People's Solidarity for Participatory Democracy, pointed out problems in the merger process between affiliates within the same corporate group under the current system and proposed that the Fair Trade Commission review and approve merger ratios between affiliates as an improvement measure. Park Chang-gyun, senior research fellow at the Korea Capital Market Institute, pointed out that fixing the merger price calculation method as a specific approach causes problems and emphasized the need to prepare alternatives such as fair value standards. Shim Won-tae, officer of the Fair Market Division at the Financial Services Commission, agreed on the need to strengthen fairness in mergers between affiliates and stated that he would actively participate in discussions on legislative amendments.
Kim Hyung-kyun, director at Cha Partner Asset Management, proposed that the unfairness of merger ratios could be resolved through amendments to the Commercial Act expanding the duty of loyalty and duty of care of directors to not only the company but also all shareholders. Jun-beom Cheon, attorney at Law Firm Seum, stated that in the case of mergers between affiliates, it is necessary to determine the merger price through separate corporate valuations considering asset value and income value. Kim Kwang-joong, attorney at Law Firm Hangyul, argued that since the issue of unfair corporate value evaluations by accounting firms continues, it is necessary to introduce a system similar to the Financial Supervisory Service’s accounting audit in corporate value evaluations to ensure the appropriateness of corporate value assessments as an improvement measure.
Ryu Young-jae, chairman of the Korea Corporate Governance Forum, said, "Mergers lacking fairness cause distrust and dissatisfaction in the capital market," and added, "The current moment, when the capital market is being re-evaluated by individual investors, is the right time to improve laws related to merger ratios."
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