'Fair Value' Required in Listed Company Mergers... Capital Markets Act Amendment Passes Political Affairs Subcommittee

An amendment to the Capital Markets Act, which mandates the introduction of a 'fair value' that comprehensively considers not only the stock price but also asset value in the case of listed company mergers, passed the National Assembly's Political Affairs Committee subcommittee on May 12.

On this day, the Political Affairs Committee convened its first legislative review subcommittee and approved a partial amendment to the “Act on Capital Markets and Financial Investment Business (Capital Markets Act)” containing these provisions. The core of the amendment is to separately calculate the merger value by reflecting asset value and stock value during mergers and acquisitions (M&A) between affiliates, and to make external evaluation mandatory.

Under the current law, the merger value between a listed corporation and its affiliate has been calculated based on the market stock price. As a result, there have been criticisms that the intrinsic value of the company is not properly reflected. Additionally, there have been ongoing criticisms that companies may intentionally leave the share price of the target company low to secure a merger ratio favorable to the largest shareholder, thereby disadvantaging minority shareholders of the target company.

As a representative example, in 2024, Doosan Group withdrew its merger plan between Doosan Bobcat and Doosan Robotics due to opposition from Doosan Bobcat shareholders and pressure from the Financial Supervisory Service.

The amendment aims to prevent such issues by requiring the merger value to be calculated based on fair value, and it also strengthens the board of directors' obligations by stipulating that the board must strive to protect the legitimate interests of shareholders during mergers. Furthermore, for mergers between affiliates, an evaluation by an external professional appraisal agency is required, and the evaluation report as well as the board opinion statement must be disclosed.

However, provisions such as imposing liability for damages on the company and directors/auditors when investors suffer losses due to an unfair merger value, and deeming the merger ratio fair if a majority of minority shareholders (excluding controlling shareholders) agree to the merger, were excluded from the amendment.

Kang Junhyun, floor leader of the Democratic Party on the Political Affairs Committee, stated, "With this legislative amendment, the introduction of the fair value concept that comprehensively reflects the actual value of companies will help create a more rational and fair capital market environment."

On the same day, the subcommittee also approved a partial amendment to the “Special Act on the Prevention of Damage from Telecommunications Financial Fraud and Refund of Damaged Funds” (Telecommunications Fraud Damage Refund Act), which responds to voice phishing crimes. The core of the amendment is the introduction of a “leniency system” (judicial cooperation penalty mitigation system), which allows for reduced sentences for those who have committed telecommunications financial fraud, such as voice phishing, if they testify or submit other materials to help clarify the crimes of others involved in the same case.

In addition, a partial amendment to the Insurance Business Act, which prevents those who violate laws related to insurance fraud or unauthorized financial solicitation from soliciting insurance, was also processed.

The Political Affairs Committee plans to hold a plenary session on May 14 to approve the bills passed by the subcommittee on this day.

This content was produced with the assistance of AI translation services.