Poison Pill Sought to Protect Firms
By Yoon Ja-young
Minister of Justice Kim Kyung-han reported to President Lee Myung-bak Wednesday that the ministry plans to introduce poison pills and multiple voting rights to block hostile mergers and acquisition (M&A) bids by foreign speculators. Conglomerates are hailing the move, but not a few analysts show concern that it is a chaebol-friendly gesture that doesn't meet global standards.
Poison pill measures allow stockholders to buy new shares at cheaper prices or pay huge bonuses to management when faced with hostile M&A bids. It can effectively hamper such moves even if a corporate raider acquires a 50 percent stake in a firm. For example, management could issue new shares to lower the raider's share.
``The business circle has strongly demanded introduction of measures for managerial rights protection, and the transition committee also demanded considering it. We will push for the introduction of devices that suit global standards after discussion with other ministries,'' Kim said.
The business sector has hailed the move. The Federation of Korean Industries (FKI), a conglomerate mouthpiece, has said that one out of three businesses listed on the stock market was exposed to the threat of hostile takeover bids, without any measures to protect themselves. They spent over 13 trillion won on share buybacks in 2006 and 2007, which is the only defensive tool they have against such bids, the FKI complained. They have especially raised their voices after the threat to SK by Sovereign fund in 2003 and the hostile takeover bid by Carl Icahn at KT&G.
The Ministry of Strategy and Finance, formerly the Ministry of Finance and Economy, opposed the introduction during a commercial code revision last year, saying that poison pills don't meet global standards and that it compromises equity among shareholders. Excessive protection measures can hamper foreign investment.
NGOs, who have pointed out that hostile M&A bid are already very difficult, if not impossible on Korean conglomerates with their circular shareholding systems, showed concern that owners and management can abuse the measure for opaque management at the expense of the shareholder value. Optional Ventures Korea, for example, with which President Lee was once involved, adopted the poison pill, but it only helped management embezzle money.
``The Justice Ministry is recklessly driving the issue as a duel between foreign capital and domestic capital, without being based on objective and reasonable research or analysis. The introduction of such a measure goes against the ministry's other aim of opening doors widely to foreigners,'' said the People's Solidarity for Participatory Democracy, a leading Korean NGO.
President-elect Lee Myung-bak, however, has pledged to prepare measures to protect managerial rights, and the inauguration of the new President made ministries change their attitude. Minister of Strategy and Finance Kang Man-soo said that he would positively consider introducing multiple voting rights.