ACGA Calls for Amendments to South Korea Tender Offer Bill

The Asian Corporate Governance Association (ACGA) published a letter on the 7th recommending amendments to South Korea's mandatory tender offer legislation currently pending in parliament. The international organization raised concerns that provisions in the bill conflict with shareholder equality principles South Korea has been promoting. The letter came just three days after South Korea's Financial Services Commission (FSC) on the 4th highlighted ACGA's governance ranking to showcase the country's capital market reform achievements, creating an ironic juxtaposition where the same authority the FSC cited now questions the FSC-supported legislation.

ACGA Letter Identifies Shareholder Equality Concerns in Tender Offer Bill

ACGA expressed concerns that the current Capital Markets Act amendment pending in parliament fails to guarantee equal share sale opportunities for controlling and minority shareholders. The bill requires acquirers to conduct tender offers until reaching '50% plus one share' of total equity including previously acquired stakes. ACGA noted that under this structure, existing controlling shareholders can sell their entire holdings at control premiums, while minority shareholders may only dispose of small portions or receive no tender offer opportunity at all.

The organization stated that changes in controlling shareholders can significantly impact minority shareholders' investment prospects, yet the bill does not provide equal capital recovery opportunities. ACGA cited practices in the United Kingdom, Hong Kong, and Singapore, where acquirers exceeding certain ownership thresholds must conduct mandatory tender offers for all remaining shares.

ACGA urged parliament to establish public hearings and written opinion collection procedures involving domestic and foreign institutional investors and corporations before plenary voting. If formal opinion collection does not occur, ACGA recommended two specific amendments: imposing mandatory tender offer obligations for all remaining shares when acquirers secure 30% or more equity and become new controlling shareholders, and requiring that tender offer prices for minority shareholders not fall below prices paid to existing controlling shareholders.

FSC Praised ACGA Ranking Three Days Before Critical Letter

The FSC on the 4th promoted South Korea's achievement of a 'historic 5th place' in ACGA's corporate governance assessment. The FSC emphasized ACGA's membership composition and assets under management to highlight the evaluation's credibility, stating that government capital market reform achievements received international recognition. The FSC specifically noted that ACGA members include global asset managers such as BlackRock and Vanguard, as well as the National Pension Service, with member institutions managing over $40 trillion in total assets.

FSC Chairman Lee Eok-won in June welcomed an ACGA letter thanking the South Korean government and parliament, stating it was "very unusual" and that receiving such a meaningful letter on the first anniversary of the current administration was "rewarding and appreciated." Lee promised to actively listen to overseas investors' opinions.

Domestic Experts Echo ACGA's Call for Legislative Amendments

Lee Nam-woo, chairman of the Korea Corporate Governance Forum, on the 5th urged caution regarding the ACGA ranking improvement, stating "it's not time to pop the champagne." Lee emphasized that foreign investors he met in Taiwan expressed strong opposition to the current mandatory tender offer bill, stressing the need to introduce a full remaining share purchase system based on shareholder equality principles.

The FSC previously stated it would prioritize the '50% plus one share' method agreed upon by the National Assembly's Political Affairs Committee, with supplementary measures such as full remaining share purchases available for future discussion. ACGA acknowledged South Korea's positive corporate governance improvements including Commercial Act amendments and value-up policies in its letter, while expressing disagreement with specific provisions in the mandatory tender offer bill.

FAQ

What did ACGA recommend in its letter to South Korea's parliament?

ACGA recommended two amendments: requiring acquirers who secure 30% or more equity and become new controlling shareholders to conduct mandatory tender offers for all remaining shares, and ensuring tender offer prices for minority shareholders are not lower than prices paid to existing controlling shareholders.

When did the FSC praise ACGA's governance ranking?

The FSC on the 4th promoted South Korea's 5th place achievement in ACGA's corporate governance assessment, three days before ACGA published its letter on the 7th recommending amendments to the mandatory tender offer bill.

What is ACGA and how large is its membership?

ACGA is a Hong Kong-based non-profit international organization with over 100 member institutions including BlackRock, Vanguard, and the National Pension Service, managing total assets exceeding $40 trillion.