[OUTLOOK]Rules must be fair to all

The battle over management control between KT&G Corp. and Carl Icahn is attracting much attention. While a heated debate is underway, most of the arguments seem to deviate from the core of the issue. What is the essence of the dispute between KT&G and Mr. Icahn?
The nature of the problem is simple. One company’s management control is threatened by another. It is hardly the point of the problem that the defender is a privatized state corporation with a monopoly and the aggressor is a foreign fund. Once the essence of the problem becomes clear, the key issue becomes evident. The points are whether KT&G has indeed been inefficiently managed and whether Mr. Icahn is a raider who can illuminate the inefficiency and improve the corporate value of KT&G. If KT&G has been inefficiently managed and failed to raise its stock price smoothly, then it deserves to be attacked.
In contrast, if KT&G has been efficiently managed, Mr. Icahn’s aggression will fail. The decision is up to investors in the market. The role of the government is to induce the market to come up with an accurate evaluation. When a takeover is openly pursued, the focus of the discussion should be who can manage the company more effectively. It is not right to reject the aggressor just because it is a foreign fund. The investors should be able to tell whether Mr. Icahn is an expert in the industry where KT&G operates, whether the companies Mr. Icahn has taken over and managed in the past have grown in the long run, or whether he tends to abandon a company after making a profit in the short run.
In terms of policy, the issue is whether the KT&G is part of an industry that the country needs to safeguard strategically. If it is a key industry related to our national security, it is only proper to prevent it from being taken over by a foreign company. Just like the Exon-Florio provision in the United States, the foreign control of key industries related to the national security needs to be approved in advance. A provision that prevents acquisition by a foreign company needs to be added to existing laws defining industries such as broadcasting, communications, power generation, passenger transit and freight transport. Such is an internationally recognized system. Under the premise that the government does not expand it arbitrarily, the provision should clearly define the key industries and ban mergers and acquisitions by foreigners completely. It is not appropriate to prepare a defense measure that applies only to foreign companies within the Securities Exchange Act as some insist. The Securities Exchange Act sets the rules of the game so that free and fair mergers and acquisitions can be accomplished based on market principles.
If KT&G is an efficiently run company but cannot defend its management control due to systematic shortcomings, what are realistic tactics the company can use? Some suggest introducing measures like the “poison pill” clause, multiple voting rights and golden shares, but these should be considered very carefully because they bring many side effects. Even if these measures are adopted, the law has to be revised, which will take time. On a passive level, a white knight that could help defend KT&G might be useful. However, the most effective defense is the appearance of a new aggressor who will compete against Mr. Icahn. If the stock price is relatively low for the company’s actual value because it holds too much real estate and too many unlisted companies, I wonder why Korean investors are not trying for a deal with KT&G. What are the Korean private equity funds doing now?
It is not fair that we have a different yardstick just because the aggressor is a foreign company. Such a double standard does not suit a member of the Organization for Economic Cooperation and Development with the 13th largest GDP in the world and aspiring to become the financial hub of East Asia. It does not help resolve the problem to look at the deal from the viewpoint of a Korean defender versus a foreign aggressor. Preparation of defense measures against takeover attempts need to be discussed from the macroscopic level of making the market more dynamic. If we reinforce defense measures because a foreign fund is attacking, we will become an international laughing- stock. We should strategically respond if we truly don’t want KT&G taken over by a foreign fund.

* The writer is the vice president of the Korea Securities Research Institute. Translated by the JoongAng Daily staff.

by Kim Hyoung-tae