Changes to M&A Starting in December: New Standards for Merger Price Calculation and Disclosure Scope

Going forward, when determining prices for corporate mergers and acquisitions (M&A), a fair price will be applied that takes into account asset value and income value, among other factors. In addition, the board of directors must publicly disclose an opinion statement regarding the merger price. The scope of external evaluation items will be expanded to review not only the appropriateness of the merger price and transaction terms, but also the adequacy of the evaluation methodology and the reasonableness of the assumptions used in the price calculation.

The Financial Services Commission announced on September 15 that it would begin the preliminary notice procedures for revisions to the “Enforcement Decree of the Capital Markets Act” and the “Regulation on the Issuance and Public Disclosure of Securities” reflecting these changes. The public notice period will run from the following day through October 6.

The Financial Services Commission has deleted the detailed calculation methods for merger prices and appraisal price for stock purchase rights as provided in the Enforcement Decree of the Capital Markets Act. This is because, following the amendments to the Capital Markets Act, merger prices and appraisal prices for stock purchase rights will be calculated based on market price, asset value, and income value, among other relevant factors.

Additionally, when a merger is promoted, the board of directors’ opinion statement must be disclosed through the main text and attachments of the securities registration statement, as well as any disclosures of major matters. If the board establishes a special committee to ensure the fairness of the transaction, this information must also be disclosed.

The scope of external evaluation items will also be expanded. External evaluation must now cover not only the appropriateness of the merger price and transaction terms, but also the “adequacy of the evaluation methods used” and the “reasonableness of key assumptions forming the basis of the price calculation.” These external evaluation items must be disclosed in the main text and attachments of the securities registration statement, as well as in the attachments of reports on major matters.

Furthermore, in cases of mergers between affiliates, the securities registration statement must include information on shareholdings, debt guarantees, concurrent directorships, and changes in shareholdings between special related parties of the relevant corporation and the counterparty. This is to allow shareholders and investors to clearly identify the interests among the parties involved.

In order to ensure that appraisal prices for stock purchase rights are reasonably assessed, it will be mandatory both to have an external evaluation institution review the adequacy of the price and to publicly disclose this evaluation. In the past, even when shareholders opposed a merger and exercised appraisal rights, the value of their holdings was not always reasonably assessed.

The Financial Services Commission plans to implement the revised Enforcement Decree of the Capital Markets Act and the Regulation on the Issuance and Public Disclosure of Securities on December 9, after undergoing regulatory review, deliberation and approval by the Securities and Futures Commission and the Financial Services Commission, and resolution at the State Council.

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