By Choi Sung-jin
Korea needs to boost the "corporate control market," where participants vie for management control of businesses by making takeover bids, an expert said Thursday.
"Various characteristics are being observed in Korea's merger and acquisitions market, which has taken a different form from those of advanced countries," said Professor Park Kyong-suh of Korea University, at a symposium co-sponsored by the Korean Finance Association and the Korea Capital Market Institute.
Professor Park cited as examples the unduly high management control premiums accompanying M&A bids here compared with other nations, monopolies by controlling shareholders, lack of management-regulating M&As that can punish incompetent managers, conflicts of interest and equity issues between large and small shareholders, and various M&A-related systems advantageous for defending corporate control.
"I have some fundamental doubts whether it is justifiable to allow controlling shareholders or managers to make unfair profits in the course of protecting or enhancing management control," Park said. "More seriously, questions often arise whether many of these corporate controls deserve such strong protection."
Korea has seen only a small number of hostile takeover bids, such as the tender offer by the Shindongbang Group for Midopa Department Store in 1997, the 2003 bid by Sovereign Fund to participate in SK Group's management through an equity purchase and Carl Icahn's similar attempt on KT&G in 2006.
"Korea's M&A market has not developed well, which shows reasons for the inefficient transfer of corporate control here and the government's frequent intervention in large businesses' insolvency, using state-run banks," he said.
Professor Park, pointing out that managers tend to work hard to enhance corporate value when there is a possibility their business is a potential hostile takeover target, said the lack of a corporate control market in Korea is fundamentally due to the imbalance between the rights of large and small shareholders.
"Excessively high corporate control premiums in Korea compared with advanced countries are posing the biggest stumbling block to developing an effective M&A market," Park said. "The high premiums are not due to added value created in the course of M&A process but to private gains made by the excessive exercising of management control or high prices paid by would-be acquirers."
As seen by insolvencies in the shipping and shipbuilding industries, the nation's handling of poorly run industries and businesses through debt restructuring by state-run banks at the eleventh hour puts an enormous burden on the national economy, the Korea University professor said. "From now on, the government needs to improve the competitive structure by encouraging M&As within industries and activate the M&A market that can regulate incompetent managers."
Park acknowledged that the previous "owner-oriented" corporate system has made a great contribution to economic development. "At a time when the low-growth era of 2 percent has become a new normal, however, should we blind-mindedly protect the management controls of the third and fourth-generation owners with little experience and dubious business acumen?" he said.
"There are also concerns that the present large business group-oriented economic structure will lead to even greater of concentration of wealth and industrial monopolies while obstructing the appearance of new, adventurous entrepreneurs."
Korea needs to boost the "corporate control market," where participants vie for management control of businesses by making takeover bids, an expert said Thursday.
"Various characteristics are being observed in Korea's merger and acquisitions market, which has taken a different form from those of advanced countries," said Professor Park Kyong-suh of Korea University, at a symposium co-sponsored by the Korean Finance Association and the Korea Capital Market Institute.
Professor Park cited as examples the unduly high management control premiums accompanying M&A bids here compared with other nations, monopolies by controlling shareholders, lack of management-regulating M&As that can punish incompetent managers, conflicts of interest and equity issues between large and small shareholders, and various M&A-related systems advantageous for defending corporate control.
"I have some fundamental doubts whether it is justifiable to allow controlling shareholders or managers to make unfair profits in the course of protecting or enhancing management control," Park said. "More seriously, questions often arise whether many of these corporate controls deserve such strong protection."
Korea has seen only a small number of hostile takeover bids, such as the tender offer by the Shindongbang Group for Midopa Department Store in 1997, the 2003 bid by Sovereign Fund to participate in SK Group's management through an equity purchase and Carl Icahn's similar attempt on KT&G in 2006.
"Korea's M&A market has not developed well, which shows reasons for the inefficient transfer of corporate control here and the government's frequent intervention in large businesses' insolvency, using state-run banks," he said.
Professor Park, pointing out that managers tend to work hard to enhance corporate value when there is a possibility their business is a potential hostile takeover target, said the lack of a corporate control market in Korea is fundamentally due to the imbalance between the rights of large and small shareholders.
"Excessively high corporate control premiums in Korea compared with advanced countries are posing the biggest stumbling block to developing an effective M&A market," Park said. "The high premiums are not due to added value created in the course of M&A process but to private gains made by the excessive exercising of management control or high prices paid by would-be acquirers."
As seen by insolvencies in the shipping and shipbuilding industries, the nation's handling of poorly run industries and businesses through debt restructuring by state-run banks at the eleventh hour puts an enormous burden on the national economy, the Korea University professor said. "From now on, the government needs to improve the competitive structure by encouraging M&As within industries and activate the M&A market that can regulate incompetent managers."
Park acknowledged that the previous "owner-oriented" corporate system has made a great contribution to economic development. "At a time when the low-growth era of 2 percent has become a new normal, however, should we blind-mindedly protect the management controls of the third and fourth-generation owners with little experience and dubious business acumen?" he said.
"There are also concerns that the present large business group-oriented economic structure will lead to even greater of concentration of wealth and industrial monopolies while obstructing the appearance of new, adventurous entrepreneurs."
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