South Korean lawmakers push for merger and acquisition reforms to strengthen minority shareholder protection and break down “Korean discounts”

The Zhitong Finance App learned that lawmakers from South Korea's ruling party recently proposed expanding the disclosure requirements for corporate mergers and acquisitions. This is the latest recent move to strengthen minority shareholders' rights protection and solve the valuation discount problem that has plagued the South Korean stock market for a long time.

According to a statement issued by the office of Democratic MP Oh Gi Hyoung (Oh Gi Hyoung) on Thursday, 11 members of the National Assembly, including Oh Gi Hyung, have submitted amendments to the Capital Markets Law, which mainly regulates mergers and acquisitions of listed companies. Oh Ki-hyung is also the chairman of the National Assembly's special committee on the “Korean discount” issue.

According to the amendments, the board of directors of the company subject to the takeover must publicly issue an independent opinion on the takeover offer to clarify whether the offer conforms to the interests of all shareholders. Furthermore, the amendments also extend the scope of application of mandatory information disclosure from only involving company assets or management decisions to all corporate decisions that have a substantial impact on shareholders' rights. This means that any merger and acquisition proposal that affects shareholders' interests will be subject to mandatory disclosure.

The so-called “Korean discount” means that the valuation of listed Korean companies has been lower than that of comparable global companies for a long time, and the market generally attributes this to weak corporate governance and the dominant position of family owned chaebol. Although the Korea Composite Stock Price Index (Kospi) has accumulated a cumulative increase of more than 50% this year, its valuation level is still lower than similar markets such as Taiwan and Japan, highlighting the valuation gap that policymakers are trying to bridge.

This reform is an important part of President Lee Jae Myung's (Lee Jae Myung) administration's comprehensive revision of corporate governance rules. Lee Jae-ming's government and ruling party have taken improving governance and increasing shareholder returns as the core gripper to drive the revaluation of the stock market. Last year, the South Korean National Assembly passed a landmark reform extending the fiduciary duties of company directors to all shareholders, requiring directors to protect the interests of all shareholders equally.

Wu Ki-hyung said that the South Korean M&A market has so far failed to effectively perform its function of unleashing the potential of underestimated companies; this is the core problem the amendments are trying to solve. In his statement, he stated, “This amendment is expected to contribute to investor protection and the resolution of the 'Korean discount' issue by strengthening the board's responsibility in the merger and acquisition process and improving information transparency.”