Retail Investors Also Push Back Against Mandatory Tender Offers That Put "Major Shareholders First"; Petition Calls for Review

National Assembly petition draws more than 4,300 signatures overnight

Retail investors have pushed back against a proposal to introduce a mandatory tender offer system that would allow buyers in mergers and acquisitions (M&A) involving listed companies to make a “prior purchase” of controlling shareholders’ stakes, and have even filed a petition with the National Assembly.

According to the National Assembly’s National Consent Petition website, a petition posted on October 15, titled “Request for a Full Review and Legislative Revision of the ‘Mandatory Tender Offer System’—a So-Called Shareholder Protection Law That Deceives 14 Million Retail Investors—and the ‘Stock Price Suppression Prevention Act,’” had received 4,327 signatures as of 11:45 a.m. on October 16. The petition is open for signatures through November 14, and 50,000 signatures are required for referral to a National Assembly standing committee. The petitioner is Kim Tae-seok, head of the Value Investment Research Institute, who is known as “Namsan Juseong.”

Kim criticized the current proposal to introduce a mandatory tender offer system, saying it treats a controlling shareholder’s share differently from an ordinary shareholder’s share, and that allowing prior purchases creates a structure that benefits only controlling shareholders.

The amendment to the Capital Markets Act, which has passed the National Assembly’s Political Affairs Committee, would require a mandatory tender offer in cases such as an acquirer purchasing at least 25% of a listed company’s shares and becoming its largest shareholder. The acquirer would have to make a tender offer until it secured more than 50% of all issued shares by one share.

The issue is that the acquirer would be allowed to first buy the existing controlling shareholder’s stake through an over-the-counter transaction. Under the current proposal, if an acquirer first buys the controlling shareholder’s 40% stake in a company, it would then need to make a tender offer for only 10% plus one share from ordinary shareholders to secure a majority stake. Even if all of the remaining 60% of ordinary shareholders tendered their shares, each could sell only about one-sixth of their holdings. If the controlling shareholder already owns a majority stake, ordinary shareholders might not get any opportunity to sell.

Controlling shareholders can sell their stakes at a price that includes an additional control premium, but ordinary shareholders are unlikely to receive the full benefit of that price.

Kim said, “We must no longer leave unchecked a market where one share held by a major shareholder is treated as valuable as gold, while one share held by a small shareholder is treated as worthless. The Korean stock market must become a market trusted by both domestic and foreign investors. I earnestly petition you to review the current amendments, which are becoming increasingly patchwork, so they can operate fairly in line with global standards, and to revise the ‘Mandatory Tender Offer System’ and the ‘Stock Price Suppression Prevention Act’ into strong, effective shareholder protection laws.”

Yonhap News

The same criticism had previously been voiced by the asset management industry. Eighteen domestic and international asset managers, 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 late last month calling for the National Assembly to defer a plenary vote on the proposal to introduce the mandatory tender offer system.

They called for the adoption of a “pro rata tender offer” principle, under which controlling shareholders and ordinary shareholders participate together in the tender offer and sell shares in the same proportion, if requiring the purchase of 100% of shares in an M&A transaction is too difficult. For example, if a company in which the controlling shareholder owns 40% is put up for sale and all shareholders tender their entire holdings, the acquirer would buy about 20% from the controlling shareholder and about 30% from ordinary shareholders, securing 50% plus one share.

Amid opposition from the industry, the planned October 1 plenary vote on the amendment to the Capital Markets Act was put on hold. With opposition from retail investors now added to the criticism, allowing controlling shareholders to make “prior purchases” is expected to be a key issue in future deliberations.

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