Firms issue emergency joint statement
Demand exclusion of 'pre-purchase' privilege for controlling shareholders
Emergency press conference set for Wednesday
Eighteen domestic and foreign asset management firms have urged the National Assembly to delay a bill that would introduce a mandatory tender offer system, warning that the proposed legislation risks institutionalizing inequality among shareholders.
The 18 firms — including Life Asset Management, VIP Asset Management, Align Partners Asset Management, Timefolio Asset Management and Oasis Management — issued an emergency joint statement Tuesday, calling on the Assembly to hold off on putting the mandatory tender offer bill to a plenary vote, currently scheduled for Thursday. The firms collectively manage about 87 trillion won ($64 billion) in assets.
The mandatory tender offer system would require an acquirer, when taking over a listed company, to make a tender offer to general shareholders for at least a set percentage of shares — giving minority shareholders a chance to share in the control premium.
The National Assembly's Political Affairs Committee passed an amendment to the Capital Markets Act containing the measure on Sept. 17, and the bill is widely expected to clear the full Assembly during the current regular session.
The asset managers' main objection centers on a provision that would allow an acquirer to first purchase a controlling shareholder's stake in an off-market transaction and then conduct a tender offer to general shareholders only for the remaining shares needed to reach a threshold of 50 percent plus one share.
For example, if a controlling shareholder holds a 40 percent stake and the company changes hands, the acquirer could buy that entire 40 percent stake off-market and then be legally required to make a tender offer to general shareholders — who collectively hold 60 percent — for only the additional 10 percent plus one share needed to cross the threshold.
In that scenario, even if all general shareholders tendered their shares, each could sell only about one-sixth of their holdings, while the controlling shareholder would pocket roughly 80 percent of the shares the acquirer purchases.
If the controlling shareholder already holds more than 50 percent, general shareholders would not even get the chance to sell their shares at a control premium, the firms argued.
"We support the introduction of a mandatory tender offer system, but the structure that allows only the controlling shareholder to sell their entire stake first must be corrected," the firms said. "The purpose of the system is to guarantee general shareholders the same opportunity to sell on equal terms as the controlling shareholder when control changes hands."
The firms also warned that once an acquirer secures a majority stake, minority shareholders lose any meaningful ability to check management, and the value of remaining shares could fall sharply — meaning losses from unsold shares could outweigh any gains from partial sales.
As an alternative, the firms proposed a "proportional tender offer" approach that would ban the pre-purchase of a controlling shareholder's stake and require the controlling shareholder to participate in the same tender offer process as general shareholders, applying a pro-rata principle equally to all shareholders.
Under a proportional tender offer applied to the same example of a company with a 40 percent controlling stake, if all shareholders tendered, the acquirer would purchase roughly 20 percent from the controlling shareholder and about 30 percent from general shareholders in equal proportion.
The result, the firms argued, would allow all shareholders to sell approximately half their holdings at the same premium price.
"The total number of shares the acquirer purchases — 50 percent plus one share — and the purchase price remain unchanged, so there is no additional financing burden on the acquiring company," the firms said. "Guaranteeing not only the same price but also the same proportion of shares sold is consistent with the principle of shareholder equality under the Commercial Act."
The firms added that once a change-of-control transaction is completed, it cannot be unwound even if the law is later amended. They urged the Assembly to postpone the Thursday plenary vote and redesign the system from scratch through an open public deliberation process involving general shareholders, institutional investors, companies and academics.
The firms plan to hold a joint press conference Wednesday to present their detailed positions and proposed alternatives.
jiyun@heraldcorp.com
