Mandatory Tender Offers to Begin No Earlier Than Q4 Next Year... What to Check Before Chasing Premiums [Click e Market]

Mandatory Tender Offer Bill Postponed from Plenary Session
Even If Passed by Year-End, Enforcement Expected Late Next Year
Proportional Tender Offers to Highlight Private Equity Major Shareholder Firms

On the 30th of last month, representatives of asset management companies are taking a commemorative photo at a press conference urging the reconsideration of the mandatory tender offer system for asset management companies, held at the Kensington Hotel Yeouido in Yeongdeungpo-gu, Seoul. Photo by Yonhap News.

You hear that the company whose stock you own is being sold. The major shareholder is reportedly receiving a significant premium in exchange for handing over management rights, but will you be able to sell your shares at the same price? The introduction of the mandatory tender offer system, which began with this very question, has been postponed until next year. Experts advise that investors should not focus solely on shareholding ratios, but also closely examine the details of the finalized system and the specific transaction conditions to identify the true beneficiaries.

On October 7, Hanwha Investment & Securities predicted that the benefits of the mandatory tender offer system would not materialize until at least the fourth quarter of next year. The main reason is that the bill, which was scheduled to be put to a plenary session of the National Assembly on the 1st of this month, has been postponed. Even if the bill is eventually passed, enforcement will only begin one year after its official promulgation. Furthermore, the system will only apply to transactions in which shares are purchased after the effective date. Therefore, it is crucial to check not only when the bill passes but also the specific content of its final form.

The main issue centers on the order in which shares are purchased. The version that passed the National Policy Committee enables the acquirer to first purchase the major shareholder's stake, and then to make a 'preemptive purchase' of the amount needed to reach '50% plus one share.' For example, if the major shareholder holds 40%, only about 10% of the shares would need to be purchased from minority shareholders. Critics argue that if all minority shareholders wish to sell their combined 60%, each would only be able to sell about one-sixth of their holdings, resulting in unfair treatment among shareholders.

As an alternative, domestic asset management companies have advocated for "proportional tender offers." In this system, both controlling and minority shareholders participate in the tender offer and sell their shares at the same ratio. For instance, if a company with a 40% controlling shareholder stake is put up for sale and all shareholders offer all their shares, the acquirer would buy about 20% of the required '50% plus one share' from the controlling shareholder and about 30% from minority shareholders.

If a proportional tender offer is applied, what matters most for minority shareholders is not just the tender offer price, but the total value of their holdings—meaning the sum of the proceeds from shares sold and the value of any remaining shares. Seyeon Park, a researcher at Hanwha Investment & Securities, explained, "In transactions where all shares are intended to be sold—such as when an owner is retiring or a private equity fund (PEF) is reaching maturity—the treatment of the remaining shares will be a variable affecting both the completion of the deal and the post-acquisition governance structure. Minority shareholders will only see real benefit from a tender offer if they carefully assess the value of the shares they retain after selling."

For management rights transactions completed before the implementation of the mandatory tender offer system, the current rules will continue to apply. This means that acquirers who purchase only the controlling shareholder's stake are not required to make a tender offer to minority shareholders. For example, Hahn & Company recently sold its entire 72.19% stake in K Car (now KG Mobility Platform) to KG Steel (532.50%) and Cactus Private Equity in a deal completed on August 31. No public tender offer was made to minority shareholders.

Even when a tender offer is made, if there is a minimum quantity condition, the outcome can fall through, as in the case of Gabia. Park added, "If the law changes to require proportional tender offers, investors should pay close attention to listed companies in which a private equity fund is the largest shareholder with more than a 40% stake. Since sellers in this situation have a deadline for recovering their investment, it is important to first check the fund's maturity and whether a sale is being considered."

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