The asset management industry has positively evaluated President Lee Jae Myung's move to open up public discussion on the introduction of a mandatory tender offer system, while pointing out problems with a method that prioritizes the purchase of shares held by major shareholders. It emphasized that, in order to protect minority shareholders, the system should allow for the simultaneous purchase of shares from all shareholders, not just major ones.
On the 28th, President Lee posted on X (formerly Twitter), "There are considerable concerns and practical considerations crossing paths both inside and outside the market regarding the specific purchase ratios and methods in the detailed legislative proposal for the mandatory tender offer system," adding that he is seeking related discussions and opinions.
The mandatory tender offer bill, which would allow an acquirer to first buy out a major shareholder's (controlling shareholder's) stake and then conduct a public tender offer only for the remaining amount needed to reach "50% plus one share," had its submission to the National Assembly plenary session postponed on the 30th of last month. This was because the asset management industry protested that the bill could undermine the rights of general shareholders.
The issue raised by asset management firms is that it allows a controlling shareholder to sell their entire stake to an acquirer before general shareholders do. For example, if a controlling shareholder holds 40% of the shares, the acquirer can first purchase this 40% off-market and then buy only the remaining 10% plus one share from general shareholders through a public tender offer. If the controlling shareholder's stake already exceeds half, general shareholders may not even get the opportunity to sell their shares.
The asset management industry argues that while mandating the purchase of "50% plus one share" including major shareholders' stakes, the system must ensure fair pro-rata allocation of sale rights extending to minority shareholders' holdings. President Lee also addressed this argument on X. He stated, "In this case, a problem arises where a major shareholder transferring management control cannot sell their entire holding and must dispose of the remaining shares at market price," adding that this is why there are concerns that it could reduce incentives for major shareholders to sell, thereby stifling corporate restructuring or healthy M&A. He further noted, "There is also a compromise opinion suggesting that, to promote M&A activity, '50% plus one share' should be mandated as a compulsory purchase, but after the acquirer buys out all of the major shareholder's stake, only the remaining portion can be claimed for pro-rata purchase by minority shareholders," referring again to the bill whose plenary submission was postponed.
The asset management industry first positively evaluated President Lee's decision to bring the mandatory tender offer system into public discourse. Lee Chae-won, Chairman of the Board of Directors at Life Asset Management, said, "It seems President Lee is trying to solicit opinions from a majority on the mandatory tender offer system publicly," adding, "We view the attempt itself positively."
However, the industry pointed out that there are still problems with the compromise plan mentioned by President Lee. Chairman Lee stated, "The fundamental principle is that one share of stock should guarantee equal value and equal rights," adding, "Even though they hold the same type of shares, the fact that some can dispose of their holdings while others can only sell a portion undermines the interests of general shareholders."
They rebutted concerns that fair pro-rata allocation between major and minority shareholders' stakes could stifle M&A as excessive worry. An official in the asset management industry said, "The global standard itself is for an acquirer to buy 100% of shares during M&A, and the compromise on this is the '50% plus one share' pro-rata public tender offer," adding, "Other countries, such as Japan, are conducting M&A without issues. There is no basis for concerns about M&A contraction."
Analysis also suggests that if major shareholders cannot sell their entire holdings, it could actually promote healthy M&A. This is because, since the major shareholder still holds a stake, there is a high likelihood they will transfer management control to an acquirer capable of growing the company in the future.
Management firms also argued that if preferential purchase by major shareholders is implemented, the "Korea Discount" could deepen. Kim Min-guk, CEO of VIP Asset Management, said, "While claiming to attract foreign investors, we are moving away from global standards," adding, "This could entrench the flawed practice where controlling shareholders benefit more than general shareholders."
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