[Click e-Stock] Will the Introduction of 'Fair Value' Change the Game for Affiliate Mergers That Used to Harm Retail Investors?

Application of Fair Value Instead of Market Price in Affiliate Mergers

“Maintaining ‘Overweight’ Recommendation for Holding Companies”

With the passage of the amendment to the Capital Markets Act, it is expected that holding companies belonging to large business groups will become even more cautious when making decisions on corporate restructuring such as mergers between affiliates.

On September 2, Ina-Ye Lee, a researcher at Korea Investment & Securities, analyzed, "The costs of asset transactions between affiliates have increased, and board accountability and litigation risks have also grown." She maintained her investment rating recommendation of 'overweight' for the holding company sector.

Abolishment of Reference Market Price for Merger Price Calculation and Introduction of Fair Value

The amended Capital Markets Act eliminates the previous reference market price method for mergers between affiliates. Lee explained, "For calculating the merger price of listed companies, fair value must now be determined by comprehensively considering stock price, asset value, and earnings value."

Going forward, if the board of a listed company resolves to proceed with a merger, it must prepare and disclose a statement outlining the merger's purpose, expected effects, and the appropriateness of the merger price. Assessments by external valuation agencies and disclosure of those results have also become mandatory. Lee added, "The exercise price for appraisal rights must also be determined as a comprehensive amount evaluated by the board," and clarified, "This is intended to prevent ordinary shareholders from becoming victims of intentional price suppression."

Impact on Mergers Between Subsidiaries of Large Corporation Holding Companies

This legal amendment is expected to have a significant impact on mergers and asset transfer transactions between subsidiaries within holding companies that belong to large business groups. Lee emphasized, "Even if a listed company's stock price is lower than its asset value or actual earnings power, transactions reflecting only the market price are now virtually impossible."

She went on to say, "External valuation by an independent agency is now mandatory for asset transfers, and all procedures now entail stricter obligations such as preparation of board statements." She analyzed, "Business group restructuring moves will become more cautious going forward."

Two new special provisions have also been instituted for mergers between listed companies with affiliate relationships. Lee noted, "For mergers and similar transactions, the auditor or audit committee of the listed company is now required to directly select the external valuation agency, ensuring greater independence and objectivity."

She added, "During the merger process, listed companies must disclose any conflicts of interest between related parties and their counterparties," and further commented, "Such disclosures regarding conflicts of interest aim to strengthen informational transparency and shareholder accessibility."

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