A bill amending the Capital Markets Act was introduced in the National Assembly on Sept. 3. Bill No. 2221068, sponsored by lawmaker Oh Ki-hyung and 10 co-signatories, is what the market has come to call the "Korean-style bear hug" legislation. Only three provisions were revised. Yet within a month, opinion has split sharply. One side calls it "a market-friendly tool for resolving undervaluation." The other warns it creates a "tilted playing field" between acquirers and defenders. The ruling party has said it intends to pass the bill before year's end. That three amended provisions could generate this much friction comes down to one thing: the bill takes direct aim at the long-standing silence of corporate boards.
A bear hug is a strategy in which a prospective acquirer publicly offers a price significantly above the current share price, making it difficult for the board to simply say no. The amendment would require boards to disclose the details of any acquisition proposal that materially affects shareholder value — including the contents of the offer, the board's review plan and its final judgment — and would make it mandatory for boards to state their position on a tender offer.
Under the amendment, a board's obligation to express an opinion on a tender offer would shift from "may" to "must." For any tender offer that materially affects shareholders, the board would be required to issue a position after an independent and professional review. Failure to comply would carry a fine of up to 100 million won ($74,200). The word "shareholder" would also be added to the list of triggers requiring a material disclosure report. A board that receives an acquisition proposal would be required to immediately disclose the offer's contents and its review plan, then file a second disclosure setting out its final judgment along with the deliberation process and reasoning.
The numbers behind the bill tell the story. According to the bill's statement of purpose, approximately 69 percent of companies listed on the Kospi traded below a price-to-book ratio of 1 as of end-2025 — compared with roughly 20 percent in the United States and about 36 percent in Japan. For years, the standard response from a company that received an acquisition proposal was a single line: "Nothing has been confirmed." The offer price was known only to the controlling shareholder and management; ordinary shareholders had no way of knowing who had bid on their shares, or for how much. An amendment to the Commercial Act last July expanded directors' duty of loyalty to encompass shareholders, but at the very moment a company's value was being put to the test, there was no mechanism to verify that the duty was being honored.
The concerns, however, are grounded in substance. Under current law, no proof of financing is required at the proposal stage. A single exploratory offer can move a share price and drag a board into a public disclosure. Critics also point out that the United States, which has a similar regime, pairs it with defensive tools such as poison pills and dual-class voting rights. On the other side, some question whether the bill would work at all. Domestic private equity funds, which have long depended on business relationships with large conglomerates, have little incentive to pursue openly hostile acquisitions — meaning the bill may ultimately hand the opportunity to foreign funds. Criticism that the bill goes too far and criticism that it does not go far enough are being leveled at the same legislation simultaneously.
Both lines of criticism converge on the enforcement regulations. The criteria for determining a "bona fide offer" — which had been discussed before the bill was introduced — and the proposed threshold of a price-to-book ratio below 0.5 appear nowhere in the text. The question of which proposals trigger a disclosure obligation has been delegated entirely to a presidential decree. If the standard is too loose, fabricated proposals will roil markets through mandatory disclosures; if it is too strict, the regime will go unused. The bill's success or failure will be decided there.
International precedents offer useful reference points. In the United States, a target company must disclose — within 10 business days of a tender offer's commencement — one of four positions: a recommendation to accept, a recommendation to reject, a neutral stance, or an inability to take a position, each accompanied by reasons. That obligation, however, applies only after a tender offer has formally commenced and does not extend to a mere acquisition proposal. South Korea's amendment, which would require disclosure from the proposal stage onward, is more stringent by comparison.
Japan established a principle of board review and explanation through the Ministry of Economy, Trade and Industry's "Guidelines on Corporate Acquisitions," issued in August 2023. Seven & i Holdings illustrated how the framework operates in practice. Canada's Alimentation Couche-Tard initially proposed $14.86 per share; after being rejected, it returned with a revised offer of $18.19 — a roughly 22 percent increase. Seven & i declined again, calling the offer an undervaluation of the company. Rejection was not the end of the story. Seven & i replaced its chief executive, divested its supermarket business and launched a buyback worth 2 trillion yen ($12.7 billion). The price of saying no was having to prove the company's worth on its own terms.
That is precisely where Korean boards need to prepare. Even if the amendment passes, boards will retain the right to reject an offer. What they will need, however, is a process-based rationale for doing so. Companies should establish internal systems that ensure directors and executives report to the board without delay, along with clear internal criteria for determining whether a proposal triggers a disclosure obligation. When conflicts of interest are a concern, procedures should be put in place in advance — including the formation of a special committee led by independent directors and access to independent financial and legal advisers. The review process should be documented. For companies whose share prices have traded below net asset value for an extended period, the starting point is a fresh look at their value-enhancement plans and capital allocation policies. A structure is taking shape in which improving corporate value becomes, in itself, a form of governance defense.
What is disappearing is the right to stay silent. The moment someone puts a price on a company, "nothing has been confirmed" is no longer an acceptable answer. The amendment is set to take effect six months after promulgation. Before that happens, boards have one answer to prepare: what the company is worth, and why.
By Moon Sung, deputy director of the Yulchon Corporate Governance Center
park.jiyeong@heraldcorp.com
