The stock market, which had surged into the era of a 9,000-point KOSPI, has retreated to the 5,000 level and is now passing through a steep correction. The index’s labored descent sounds a weighty alarm for the Korean market. It is a signal that the time has come to re-examine the fundamentals and institutional framework of the capital market.
This is the moment to find remedies that strengthen the market from within. At such a critical juncture, it is reassuring that the government has signaled agreement on the need to expand the market through more active mergers and acquisitions. The industry has long worried that moving straight to a 100% mandatory tender offer requirement in the law could chill M&A activity. President Lee Jae-myung highlighted the benefits of more active M&A at a capital market roundtable on the 13th. The view is that when M&A becomes more active, undervalued companies are revalued, setting off a virtuous cycle in the stock market that leads naturally to higher corporate value. A market that had feared M&A would freeze under a stronger mandatory tender offer regime now appears relieved.
For this value-up to actually work, the reality of Korean corporate governance must also be viewed without illusion. Listed companies in the U.S. and Britain spread management responsibility among several large shareholders. Korean companies, by contrast, often have a largest shareholder bloc holding more than half the equity, and the legal and managerial responsibility for major decisions is likewise concentrated in that controlling shareholder. Under such a structure, unless a certain level of premium is recognized for the controlling shareholder, no incentive to sell arises in the first place. In other words, forcing a 100% mandatory tender offer too quickly could block the entrance to the very virtuous cycle in which undervalued companies change hands and value-up follows.
Nor should the uneven playing field in capital strength be overlooked. A 100% mandatory tender offer is no obstacle to global private equity funds with vast firepower. For homegrown private equity funds and domestic venture capital, the situation is different. They still find it difficult to secure enough money to buy up all remaining shares at once. If M&A led by domestic capital contracts, the initiative in industrial restructuring could shift to foreign capital in a single stroke.
That said, the argument for going straight to a 100% tender offer should not be brushed aside either. In Korea, cases in which minority shareholders were ignored while the gains were funneled to the controlling shareholder alone are indeed more than plentiful. But with the revision of the Commercial Act writing directors’ duty of loyalty to shareholders into statute, the market’s standards are changing. Pushing through an M&A deal that channels an excessive premium to a particular controlling shareholder will increasingly invite shareholder resistance and litigation risk. That is reason to see self-correcting mechanisms gradually taking hold.
In the end, the answer lies in harmonizing legal mandates with market discipline. M&A should be encouraged on the basis of the “50% plus one share” formula agreed on by the ruling and opposition parties, with the remaining gaps left to the market’s capacity for self-correction. On that foundation, the duty of loyalty to shareholders operates as a monitoring device while the private sector builds up shareholder-friendly deal practices on its own. If legislation opens a path and the market adds its own self-correcting efforts, the Korean market can move toward an era of full tender offers gradually and without major side effects.
