TheFinancial Services Commission announced in March, 2024 that it will amend theEnforcement Decree of the Financial Investment Services and Capital Markets Act(“FSCMA Decree”) and the Regulations on the Issuance and Disclosure ofSecurities. The aim of the proposed amendments is to increasetransparency and flexibility for mergers and acquisitions (M&As) involvinglisted companies in Korea.
Theproposed amendments include:
- mandatory disclosure of the board of directors’ opinion regarding the proposed M&A transaction;
- exclusion of statutorily prescribed formula for merger consideration/ratio except for mergers with affiliates and de-SPAC transactions;
- quality and independence policy requirement for external valuation firms; and
- requirement for audit committee/statutory auditor’s approval when engaging an external valuation firm for mergers of affiliates.
Theseamendments are intended to aid shareholders in evaluating whether a proposedM&A transaction is fair, provide them with opportunities to receive a morefavorable price and protect them in related-party transactions. Theseamendments are expected to take effect in the 3rd quarter of 2024.
(1) Mandatory disclosure of theboard’s opinion
Whena listed company files a registration statement or material event reportrelated to an M&A transaction, it must attach the board of directors’opinion regarding the transaction. The opinion will set forth (i) the purposeof the transaction and its expected effects, (ii) the fairness of valuations,(iii) the fairness of merger ratio and other transaction terms and (iv) ifthere is any dissenting director, the reason for such dissent.
(2) Negotiated mergerconsideration/ratio
Thestatutorily prescribed merger consideration formula under the FSMCA Decree willapply only to mergers between (i) a listed company and its affiliate and (ii) alisted SPAC and another company. Mergers between a listed company and a thirdparty will be free from this formula, and the parties may negotiate and agreeto a merger consideration/ratio. Such negotiated price/ratio must be reviewedby an external valuation firm for fairness.
(3) Quality and independence policyrequirement for external valuation firms
Forthe review of a merger consideration/ratio, a listed company can only engageexternal valuation firms with a quality and independence internal policy inplace. Such policy will need to include measures to (i) ensure itsindependence, objectivity and fairness, (ii) check and avoid internal conflictat the time of engagement, (iii) ensure quality in preparation and delivery ofreports, (iv) ensure confidentiality and prevent insider trading, and (v) dealwith violations of such policy.
Anexternal valuation firm involved in computing a merger consideration/ratiocannot be engaged to review such consideration or ratio. Another firm must beengaged to assess its fairness.
(4) Requirement for auditcommittee/statutory auditor’s approval when engaging an external valuation firmfor mergers of affiliates
Ifa listed company seeks to engage an external valuation firm to assess a mergerconsideration/ratio for a proposed merger with an affiliate, it will need toobtain the prior approval of such engagement from the company's audit committeeor, if no such committee exists within the board, the company’s statutoryinternal auditor.
The information aboveis provided by Shin & Kim LLC via cooperation with Invest Seoul.
