A mandatory tender offer system that would let minority shareholders sell their shares at the same price as controlling shareholders during a change of control has cleared a subcommittee of the National Assembly's National Policy Committee.
The committee held a bill review subcommittee meeting on the 15th and passed an amendment to the Capital Markets Act introducing the mandatory tender offer system with bipartisan agreement. On the scope of the tender offer, the sticking point until the final stage, the bill sets a baseline of "50% plus one share," and a proposal to delegate detailed standards to a presidential decree to allow for adjustments was dropped in deference to the People Power Party's position.
The mandatory tender offer is designed to change a practice in which controlling shareholders have captured the entire control premium, by guaranteeing minority shareholders a chance to sell their shares at the same price as the controlling shareholder when control changes hands. The aim is to give legal protection to the property rights of minority shareholders, who have been left out of such deals. But considerable ripple effects are expected in the market, as mergers and acquisitions that previously required only securing the largest shareholder's stake will now be restructured to require a majority stake, including shares held by minority investors.
The rule is triggered when a buyer secures a stake of 25% or more to become the largest shareholder, or when an existing largest shareholder buys additional shares. It applies not only to direct share purchases but also to share acquisitions through the exercise of rights such as convertible bond conversion options. After deliberation, the purchase price was set as "a price determined by presidential decree in consideration of past purchase prices and other factors." As a result, the standard currently proposed by the Financial Services Commission — the higher of the highest purchase price over the past year and the closing price on the day before the mandatory tender offer filing — is expected to be reflected in the enforcement decree.
Penalty provisions were also recalibrated. Failing to carry out a mandatory tender offer, or acquiring shares indirectly through other means, will carry a prison term of up to five years or a fine of up to 200 million won. That is heavier than the existing penalty for violating general tender offer rules, which is up to three years in prison or a fine of up to 100 million won. By contrast, the disposal order under the earlier version of the amendment, which had applied to the entire acquired stake including shares bought in advance, was narrowed to cover only the portion acquired in excess of 25% in violation of the law.
