Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
M&A deals to face stricter disclosure obligations
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By Anna J. Park
Financial authorities adopt measures to enhance fairness, transparency of M&A deals
The Financial Services Commission (FSC), the country's top financial regulator, is pushing for a stronger disclosure obligation in the corporate mergers and acquisitions (M&A) process, aiming to better protect and enhance general shareholders' rights. The financial authority also plans to impose expanded responsibilities to a corporate board to ensure more transparency in their decision-making process on M&A deals.
These are some of the new regulations announced during Tuesday's meeting held at the Seoul office of the Korea Exchange (KRX), which was chaired by Kim So-young, the FSC's vice chief. The FSC has been closely consulting with experts and industry professionals since last May to draw up measures to bring Korea's corporate M&A regulations more in line with global standards.
"Undertaking an M&A is a corporate decision that greatly influences a company's controlling structure as well as the equity value of the company. Nevertheless, there has been criticism that the voice of general shareholders has not been sufficiently reflected in the M&A process," FSC Vice Chairman Kim So-young said during the meeting.
He emphasized that due to the lack of timely and sufficient provisions concerning information about the board's judgment process or the reasons for the M&A, general shareholders are put in a position of information asymmetry. This imbalance in the amount of available information on deals has sometimes led to merger deals that unfairly favor only controlling shareholders at the expense of general shareholders.
Financial Services Commission (FSC) Vice Chairman Kim So-young speaks during a meeting hosted by the financial authorities to announce the government's new measures on M&A transactions at the Seoul office of the Korea Exchange (KRX) in Seoul, Tuesday. Courtesy of FSC
Kim added that the M&A measures announced Tuesday are also aiming for what the government has consistently strived for during the past year, which is to improve the shareholder value of Korean stocks.
Firstly, companies will be obliged to make stronger public disclosures regarding their M&A decisions. Currently, companies are required to issue disclosures during mergers. However, the background of the merger process is only briefly stated, potentially resulting in insufficient information being provided to general shareholders.
The new measures will obligate companies to disclose more specific decision-making information, ranging from the background of the merger, reasons for selecting the merger counterpart, and reasons for determining the timing of the merger, and more.
Furthermore, it will be mandatory to disclose the purpose of the merger, the appropriateness of the merger amount and transaction conditions, as well as board opinions on the matter, enhancing the accountability of the board and its members during the merger process. It is intended to ensure greater fairness in M&A deals.
Secondly, external evaluation systems will be improved, aiming to bring in more transparency in determining the price of a merger deal. Additionally, in cases of mergers between affiliated companies of a business group, it will be obligatory to earn the consent of an audit committee when appointing external evaluation agencies, to secure independence from controlling shareholders of the group.
"The government will not be satisfied with the adoption of these improvements, and will continue to make efforts to protect the rights of general shareholders, while striving to increase the dynamism of the economy and capital markets," Kim stressed.
The measures will be applied to the country's corporate M&A process later this year, once the revision of related laws is completed as early as the third quarter of this year.