Ruling and Opposition Parties Agree on Introduction of Mandatory Tender Offer System... Detailed Design Still Under Negotiation

"Protecting Minority Shareholders in M&A Processes"
A System Adopted in Most Advanced Economies

Discussions on introducing the “mandatory tender offer system” are gaining momentum as a solution to address the issue of minority shareholders being marginalized during the transfer of control in listed companies. The mandatory tender offer system requires an acquirer who secures a certain stake through mergers and acquisitions (M&A) to purchase shares from other shareholders under the same conditions as the existing major shareholder. Both the ruling and opposition parties have reached a consensus on the introduction of the system itself, but the scope of the tender offer, pricing mechanisms, and speed of implementation remain subjects of political negotiation and adjustment.

On September 8, Lee Kyungyeon, a researcher at Daishin Securities, explained, “The core purpose of the mandatory tender offer system is to guarantee ordinary shareholders the opportunity to sell their shares under the same terms as controlling shareholders.”

Until now, in Korea, major shareholders who are the de facto controllers of management have exclusively enjoyed the management control premium during M&A processes. This is because, from the acquirer’s perspective, management control can only be transferred by directly acquiring the shares held by the major shareholder, which results in a premium being paid solely for those shares. Lee pointed out, “Most advanced countries have already implemented the mandatory tender offer system to protect minority shareholders during M&A processes. In contrast, Korea has long lacked mechanisms to protect ordinary shareholders, leading to repeated situations where minority shareholders are not guaranteed the opportunity to sell their shares.”

The policy timeline has become more concrete as the government recently included the mandatory tender offer system as a task to be pursued in the first half of next year under its “New Government Economic Growth Strategy.” In the current 22nd National Assembly, seven bills have been submitted by lawmakers from both parties, indicating a de facto bipartisan consensus on the introduction of the system.

The remaining challenge lies in the detailed design. Lee explained, “All proposals set the acquisition of more than 25% of shares as the requirement, but there is a divide between proposals that require the acquirer to purchase only a portion of shares (based on 50% plus one share) and those that require the purchase of all remaining shares. Regarding the purchase price, the Financial Services Commission under the previous administration proposed using the same price as paid to the controlling shareholder as the principle. However, most of the current ruling party’s proposals have adopted stricter standards, variously specifying the highest price in the past year, reflecting net asset value, or applying a uniform price principle. The timing of implementation also varies, ranging from immediate effect upon promulgation to a one-year grace period.”

Lee added, “While the ruling party’s proposals emphasize minority shareholder protection by requiring the purchase of all shares and strengthening price standards, the opposition party’s proposals delegate specific criteria to presidential decrees and take a more flexible approach, considering market acceptance. Ultimately, while there is agreement on the introduction of the system, the detailed standards remain a matter of political choice.”