M&A reforms contain a stinger

A government plan to deregulate corporate mergers and acquisitions (M&As) will limit the rights of small shareholders, the JoongAng Ilbo has found via a government document it secured.

The plan may even violate shareholders’ rights, according to analysts.

A government task force led by the Ministry of Strategy and Finance, the Ministry of Trade, Industry and Energy, and the Financial Services Commission last year proposed easing as many as 29 regulations to make M&A deals easier as part of an effort to spark the economy.

The related government agencies produced a document detailing supportive measures for promoting companies’ business restructuring.

The document contains a “one shot” act aimed at removing legal barriers associated with tax codes, corporate law and fair trade law when companies seek M&As.

There are 10 provisions in corporate law, eight in fair trade law and 11 tax codes referred to in the document.

The government agencies are having discussions based on the document and plan to introduce legislation around May after negotiations with political parties.

The proposals include restrictions on stock purchases by small shareholders, the JoongAng Ilbo found.

Under current law, when small shareholders oppose an M&A deal, they can demand the company purchase their shares at a price upon which they decide. This is a protection for relatively weaker shareholders.

If the cost of buying back those shares is too high, the deal could founder. To prevent that, the government is considering making that shareholder right ineffective, the document showed.

When Samsung Engineering and Samsung Heavy Industries tried to merge last year, small shareholders demanded as much as 1.6 trillion won ($1.4 billion) worth of shares be purchased by the company, and the deal collapsed. The National Pension Service, which held more than a 10 percent stake in both companies, exercised its right.

The government document said there may be a need to limit that right for at least three to five years as the restructuring process continues within those merging companies. The task force presented two possible ways of limiting the right. One is to restrict it for shareholders of all listed companies. The other is to restrict it partially for pension shareholders such as the NPS.

The government is benchmarking corporate law in the U.S. state of Delaware, where about 50 percent of U.S.-listed companies are technically headquartered. The law doesn’t accept the right for listed companies with more than 2,000 shareholders.

The Model Business Corporation Act, a U.S. federal law, has a similar stipulation.

Korean corporate law also exempts the right in small M&A deals.

“If the result of M&A will be positive and shareholders like it, what is the problem with the right?” asked Yoon Seok-heon, a professor at Soongsil University. “It is hard to understand why the government is trying to suppress shareholders.”

The government is also planning a provision that can prevent hostile M&A attempts during a restructuring process to help ease debt ratios of holding companies, and to reduce the M&A deliberation period by the Fair Trade Commission to 60 days.

BY PARK JIN-SEOK [song.suhyun@joongang.co.kr]