'50%+1 Share' Mandatory Tender Offer System Passes Political Affairs Committee... Criticism It Undermines President’s Pledge

Bipartisan Compromise Reached on “50%+1 Share” Instead of “100% Tender Offer”

Governance Forum Criticizes It as “Not a Half Measure, But a Bad System”

The "mandatory tender offer" system, which allows minority shareholders of listed companies to sell their shares at the same price as the outgoing largest shareholder when management rights change, has passed the National Assembly's standing committee. However, there are criticisms that by defining the tender offer target as "50%+1 share" of the total outstanding shares, rather than all remaining shares, the original intent of President Lee Jaemyung's campaign promise—to protect minority shareholders—may be undermined.

On September 17, the National Assembly's Political Affairs Committee held a general meeting and approved the amendments to the Capital Markets Act reflecting these provisions. Under the revised bill, the mandatory tender offer would apply when an investor acquires at least 25% of the shares in a listed company to become the largest shareholder, or when an already-controlling shareholder with over 25% increases their stake. The scope of the tender offer—counting existing holdings—is up to 50%+1 share of the issued stock. If subscriptions fall short of this target, only the tendered shares must be purchased.

The introduction of the mandatory tender offer system gained rapid momentum after Chilsung Kwon, policy chief of the Democratic Party, and Lee Mija, policy chief of the People Power Party, reached an agreement on a "50%+1 share" threshold at a bipartisan policy meeting on September 15. This represents a compromise from the Democratic Party's previous proposal for a "100% tender offer." With committee approval, the bill now awaits scrutiny by the Legislation and Judiciary Committee and a plenary vote in the National Assembly. There is a possibility the system may be enacted within this year.

Should the new system be introduced, significant impacts are expected in the mergers and acquisitions (M&A) market for listed companies. Within the private equity fund (PEF) industry, there are predictions that acquirers will aim to lower the management rights premium of listed companies or favor acquiring unlisted companies because of the additional tender offer costs. Assemblyman Jo Junghoon of the People Power Party abstained from the vote, stating, "Defending management rights will now require even more capital," and, "Compared to smaller domestic private equity funds, only enormous global funds will be able to participate in domestic M&A going forward."

Conversely, critics argue that protecting minority shareholders, the system’s original intent, requires mandating tender offers for all remaining shares. Changmin Han, assemblyman from the Social Democratic Party, commented, "It is desirable for the tender offer to cover all remaining shares," adding, "If it is only 50%+1 share, incumbent controlling shareholders continue to enjoy the control premium, and it becomes difficult for all general shareholders to share in those benefits."

On the same day, the Korea Corporate Governance Forum strongly criticized the reform in a statement titled, "Mandatory Tender Offer for Only 50%+1 Share: Not Just a Half-Measure, but a Bad System." The statement asserted, "At the very least, controlling shareholders should be required to sell through the tender offer (pro rata method); if even that is not possible, it is better not to legislate at all."

The forum further pointed out, "The presidential pledge was to ‘share control premiums’ and ‘guarantee an exit opportunity for minority shareholders,’ but the ‘50%+1 share’ amendment achieves neither," adding, "For companies where the controlling shareholder already holds a majority, ordinary shareholders receive no protection, and by standardizing controlling stakes at ‘50%+1 share’ across the market, the governance environment will only become worse."

Globally, the United Kingdom, European Union (EU), Hong Kong, and Singapore all require that tender offers for acquiring control must target all remaining shares. In Japan, where a two-thirds threshold triggers a full tender and solicitation obligation, parallel protections exist: no separate purchases are permitted during the tender period, and in the case of over-subscription, even major shareholders participate on a pro rata basis without exception.

Accordingly, the forum argued that if the "50%+1 share" amendment passes, two additional measures are necessary. The Korea Corporate Governance Forum stated, "Controlling shareholders should only be allowed to sell through tender offers. In Japan, any acquisition exceeding 30% must be executed via tender offer, and even major shareholders participate pro rata," and added, "If partial purchases are to be allowed, the acquisition should require the consent of a majority of independent shareholders (excluding acquirers, selling controlling shareholders, and related parties). Also, shareholders who opposed the deal should be able to tender under the same conditions after the deal becomes effective."

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