"Mandatory Tender Offer Bill Favors Only Controlling Shareholders"... Asset Managers Issue Joint Statement in Protest

Eighteen Asset Managers Controlling 87 Trillion Won Issue Urgent Statement
Opposing National Policy Committee Bill Set for October 1 Plenary Vote
Controlling Shareholders Could Sell All, Minority Shareholders Only a Portion
"Korea Discount Could Become Entrenched"

Eighteen domestic and international asset management companies managing a combined 87 trillion won in client assets have voiced unified opposition to the mandatory tender offer bill set to be submitted to the plenary session of the National Assembly. While they agree with the introduction of the system itself, they caution that if the current version proposed by the National Policy Committee passes as is, it could legally enshrine discriminatory sell-off opportunities between controlling and minority shareholders.

According to the capital market industry on September 29, eighteen asset management firms—including Life Asset Management, Must Asset Management, VIP Asset Management, Shinyoung Asset Management, Align Partners Asset Management, Cha Partners Asset Management, Timefolio Asset Management, Petra Asset Management, Oasis Management, and MyAlpha Management—issued a joint statement calling for a suspension of the processing of the National Policy Committee’s mandatory tender offer amendment, which is slated for submission to the National Assembly plenary session on October 1. The participating management firms have also announced a joint press conference scheduled for the afternoon of September 30.

The asset management companies affirmed that they agree with the intent of introducing the mandatory tender offer system. Their fundamental position is that, when there is a change in corporate control, minority shareholders should be guaranteed the same selling opportunities as controlling shareholders under identical conditions. However, they flagged a critical flaw in the current proposal, which allows for “prior acquisition” by the bidder. As drafted, the bill would allow an acquirer to first purchase controlling shares off-market, and then tender for only the number of shares needed to reach 50% plus one share through the public tender. The management firms pointed out in their statement that, “If implemented this way, controlling shareholders would be able to sell their entire holdings, while minority shareholders could only sell a fraction of theirs—or in certain cases, might not be able to sell a single share.”

For example, if a controlling shareholder holds 40% of a company’s shares and the acquirer buys those shares first, they would only need to launch a public tender for just over 10% of shares from minority shareholders to secure a majority. Even if all minority shareholders (collectively holding 60%) participate, each would only be able to sell about one-sixth of their holdings, and 80% of the shares purchased by the acquirer would come from the controlling shareholder. In companies where the controlling shareholder already owns a majority, minority shareholders could be denied any sell-off opportunity altogether.

This represents a step backward compared to both international and previous domestic standards

The asset management firms criticized the current National Policy Committee proposal as a regression compared to both previous domestic provisions and international legislative examples. The mandatory tender offer system, which was introduced in Korea in 1997 and abolished in 1998, also utilized a partial tender offer—requiring an acquirer seeking to own more than 25% initially go through a public tender offer, not allowing off-market acquisition of controlling stakes first. In Japan, while partial tenders are permitted, any acquisition above a certain threshold must be done via public tender to prevent prior acquisitions. The United Kingdom, the European Union, Hong Kong, and Singapore require any bidder who has acquired shares off-market to extend an offer to purchase all remaining shares.

The firms further noted that Korean market practice is already ahead of the current proposal. In cases such as OSTEM Implant, Lutronic, Jcys Medical, Bizion, and Ecomarketing, ordinary shareholders were routinely offered broad sell-off opportunities at the same price as controlling shareholders, even in the absence of a legal requirement. However, they warned that if a law emerges that recognizes compliance with the obligation merely by purchasing a limited number of shares—as proposed by the committee—acquirers will have greater incentives to design their deals to minimally satisfy legal obligations.

Conflict with minority shareholder protection policies… Proportional tender offer needed

The asset management companies argue that the current bill also clashes with the government’s and National Assembly’s ongoing efforts to protect minority shareholders. The revised Commercial Act requires directors to treat all shareholders fairly, but the committee proposal would allow controlling shareholders to sell their entire stakes first in cases of control transfer. Moreover, at a time when the revised Stewardship Code calls for institutional investors to be more actively involved, this bill could undermine the grounds for institutions to advocate for minority shareholder protection. Notably, the bill stands in direct contradiction to the principle behind the “Korean-style Bear Hug” system, which obligates boards to review acquisition offers from the perspective of all shareholders—whereas this proposal would allow acquirers to bypass the board and negotiate directly with the controlling shareholder for the controlling stake.

The asset management firms suggest “proportional tender offer” as an alternative. Here, the controlling shareholder, like all others, would participate in the public tender offer, and all shareholders would be subject to the same price and proportional allocation. As in the earlier example, if a controlling shareholder holds 40% and all shareholders tender their shares, the acquirer would buy around 20% from the controlling shareholder and about 30% from minority shareholders. This would allow every shareholder to sell roughly half of their holdings at the same price.

The statement stressed, “So far, this sort of discrimination has arisen from the absence of legal regulations, but if the committee proposal is implemented unchanged, a flawed practice will be enshrined as a ‘legally compliant transaction,’ further solidifying the so-called ‘Korea discount.’”

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