"Stock Price Suppression to Be Blocked"... Merger Price to Be Calculated Based on Fair Value, Not Market Price

Capital Markets Act Amendment Passes National Assembly Plenary Session

Going forward, when a listed company pursues a merger or similar transaction, the method for determining the merger price will change from relying solely on “market price” to using a new “fair value” that takes into account both assets and future income value. The intention behind this change is to prevent the so-called practice of “suppressing stock prices,” where controlling shareholders intentionally keep prices low to their advantage.

On August 20, the Financial Services Commission announced that an amendment to the Capital Markets Act containing these changes had passed the National Assembly’s plenary session. The core of the amendment requires that, for major corporate restructurings—including mergers, spin-off mergers, significant business and asset transfers, and comprehensive share swaps and transfers—the price must be based on a fair value calculated by comprehensively considering the market price, net asset value, and future income value.

Until now, merger prices for listed companies have relied solely on market prices, raising concerns that controlling shareholders and related parties could manipulate merger timing or suppress stock prices to create advantageous transaction conditions by choosing periods when market prices were undervalued.

In addition, the amendment stipulates that, in the case of opposition to mergers and similar actions, the price offered to shareholders for exercising appraisal rights must be calculated based on market price, asset value, and income value so that shareholders are presented with a comprehensive valuation.

A spokesperson for the Financial Services Commission explained, “The amendment is designed to calculate a company’s true intrinsic value by reflecting various factors, not just the market price.”

Procedural safeguards have also been strengthened. To address information asymmetry between controlling and general shareholders, boards of directors are now required to prepare and disclose a formal statement detailing the purpose and expected effects of the merger, as well as the appropriateness of the price. A new procedure has also been introduced whereby an objective third party must assess the appropriateness of the price and the terms of the transaction, with the findings to be released to the public.

Additionally, in the case of mergers between affiliated companies, matters such as debt guarantees, pledges of collateral, or dual and concurrent executive positions—that is, any interests between related parties and counterparties—have been added to disclosure requirements. A Financial Services Commission spokesperson stated, “General shareholders will now be able to review disclosures to judge the validity of a merger and, in conjunction with reinforced shareholder fiduciary duties under the amended Commercial Act, use this information to seek legal remedies when necessary.”

The amendment will take effect three months after promulgation, following referral to the government and deliberation by the Cabinet.

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