(Courtesy of Getty Images)
South Korea will put the adoption of poison pills and dual-class shares on the new policy agenda at a meeting with business leaders this month, where the country’s financial regulator expects to outline a revision to the Commercial Act aimed at protecting companies against hostile takeover attempts.
The move comes as a growing number of Korean companies face attacks from activist funds, while the government is urging companies to take shareholder-friendly measures under a so-called value-up program.
On June 26, the regulatory Financial Supervisory Service will host a corporate governance policy seminar with the Korea Listed Companies Association, the Kosdaq Listed Companies Association and the Federation of Korean Industries, according to sources from the government and relevant industries.
At the gathering, they will discuss introducing policy measures such as poison pills and dual-class shares.
“To unlock corporate value, various policy measures need to be introduced for management rights protection,” a senior government official told The Korea Economic Daily. “To this end, we will listen to various opinions.”
At the seminar, Kim Ji Pyoung, an attorney at South Korea’s largest law firm Kim & Chang, will give a presentation on the topic of poison pills and dual-class stock. The attendants will hold a panel discussion about them.
Kim specializes in M&As, private equity and corporate governance.
(Courtesy of Yonhap)
A poison pill allows shareholders to buy shares of the company at a significant discount than the market price to thwart hostile takeover bids. A dual-class stock structure allows certain shareholders to exercise superior voting rights.
Currently, treasury stocks, or shares owned by companys, are the most widely used tool for management defense. They do not carry voting rights and do not pay out dividends.
To buy back sharse and increase their ownership, companies tap into retained earnings. Sometimes those shares are cancelled to improve shareholder value as demanded by activist shareholders. Such activisits could undermine companies’ growth potential.
Alternatively, companies’ top management sell treasuries to white knights, or friendly investors.
Lee Bok-hyun, governor of the Financial Supervisory Service
FIDUCIARY DUTY
A possible revision to the Commercial Act could include imposing fiduciary duties on shareholders to act in the best interests of other shareholders and the company, according to government sources.
A total of 77 South Korean companies faced hostile takeover threats from activist funds last year, according to the FKI, a business lobby group.
The figure is up 57% from that for 2022 and the third largest number among the 23 countries surveyed, compared with 550 for the US and 103 for Japan.
Back in 2009, South Korea attempted to introduce poison pills, which backfired due to opposition parties’ objection.
Meanwhile, the government on Thursday hinted at lifting the blanket ban on short selling in April next year.
By Ik-Hwan Kim and Han-Gyeol Seon
lovepen@hankyung.com
Yeonhee Kim edited this article
