Will Companies Move Ahead of Capital Markets Act Amendments?
Spotlight on M&A Targets: Tongyang Life Insurance and Douzone Bizon
Management Control Premiums Likely to Decrease
"Concerns Over M&A Slowdown Are Overstated"
Discussions are underway in the National Assembly to reintroduce the mandatory tender offer system, which was abolished 27 years ago. There are already five proposed amendments to the Capital Markets Act addressing this issue. Recently, private equity fund VIG Partners took a proactive step by voluntarily conducting a mandatory tender offer after acquiring management control of Violl, even before the system's reintroduction. Market attention is now focused on how companies with recently traded controlling shareholder stakes will respond.
Focus on Companies Undergoing Recent M&A Activity
On September 24, DS Investment & Securities highlighted in its report "Mandatory Tender Offer Reignited" that Tongyang Life Insurance, whose controlling stake was acquired by Woori Financial Group, and Douzone Bizon, for which private equity fund EQT Partners is pursuing a controlling stake, are key companies to watch.
Woori Financial Group acquired a 75.34% stake in Tongyang Life Insurance from China Dajia Insurance. The acquisition price was 10,562 won per share, with a management control premium of approximately 53.5%. There are plans to merge Tongyang Life Insurance with Woori's other insurance subsidiary, ABL Life Insurance, and to make it a wholly owned subsidiary. In this process, whether a tender offer will be made for the shares held by minority shareholders and at what price has become a major point of contention. The current share price of Tongyang Life Insurance is about 20-25% lower than the management control acquisition price.
For Douzone Bizon, media reports indicate that EQT Partners will acquire a 31.4% controlling stake at 120,000 won per share. The latest share price is also about 20-25% lower than the management control acquisition price.
Will Minority Shareholders, Previously Undervalued, Now Be Protected?
Since the law has not yet been amended, there is currently no way for minority shareholders of Tongyang Life Insurance to be protected. With a 75% stake, Woori Financial Group can lower the share price at will and, at that point, acquire the remaining shares through stock swaps or other means at market value. In the past, similar controversies arose when KB Financial Group acquired Hyundai Securities and the remaining shares of KB Insurance, as minority shareholders' shares were bought back at low prices. Most precedents involving mergers and acquisitions by financial holding companies have followed this pattern.
Kim Soohyun, an analyst at DS Investment & Securities, stated, "Times have changed, and the duty of directors to act in the best interests of shareholders has been introduced into the Commercial Act. Woori Financial Group will no longer be able to dismiss the concerns of general shareholders so easily, and by the same logic, the likelihood of minority shareholders at Douzone Bizon being protected has also increased compared to before."
Potential Normalization of Excessive Management Control Premiums
In the United States, even though tender offers are not mandatory, most acquisitions are conducted through 100% tender offers. Among developed countries, only Korea has allowed the practice of paying high premiums for controlling stakes while acquiring the remaining shares from minority shareholders at bargain prices. The resulting losses have been borne entirely by minority shareholders.
Analyst Kim Soohyun argued, "If an obligation to purchase all shares is introduced, the management control premium will decrease, and major shareholders will no longer be able to insist on excessive prices. As a result, the acquisition price per share will not increase. Concerns that mandatory tender offers will dampen M&A activity in Korea's already well-developed acquisition finance market are overstated."
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