KFTC Approves Hanwha’s Acquisition of KAI Shares: “No Restriction on Competition Due to Lack of Control”
Judged as “Insufficient for Managerial Control”
Further Share Acquisitions or Executive Overlap to Trigger New Review
The Korea Fair Trade Commission (KFTC) has approved the acquisition of shares in Korea Aerospace Industries (KAI) by the Hanwha Aerospace consortium. The commission determined that Hanwha cannot secure effective control over KAI with the current shareholding ratio, and therefore there is no concern that market competition will be restricted.
On August 31, the KFTC announced that it had authorized the business combination for the acquisition of KAI shares by Hanwha Aerospace Co., Ltd. and two other companies.
The main issue in this review was whether the share acquisition would result in the establishment of effective control. Under the Monopoly Regulation and Fair Trade Act, a simple investment that does not establish a controlling relationship is deemed not to restrict competition, and such cases are excluded from a general review.
The KFTC concluded that, given KAI's shareholding structure, Hanwha would find it difficult to exercise independent managerial control. Currently, the largest shareholder of KAI is The Export-Import Bank of Korea, holding 26.41%. Including the National Pension Service, which owns 8.75%, the total government-related stake amounts to 35.16%. Meanwhile, Hanwha’s stake stands at only 15.89%, a level insufficient to exert significant influence over the company’s overall management.
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However, the KFTC included a clear proviso in anticipation of possible future changes in control. If Hanwha becomes the largest shareholder through additional share purchases, or if more than one-third of KAI's executive members or the CEO hold concurrent positions with Hanwha, a new business combination reporting obligation will arise in accordance with Article 11 of the Fair Trade Act. In such cases, the KFTC plans to reexamine the potential for monopoly in the defense and aerospace markets from the beginning.
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